I. events:

Pacific Securities released its 2016 annual report on the evening of February 28. According to the annual report, Pacific Securities's operating income last year was 1.803 billion yuan, down 34.24 from the same period last year; net profit was 668 million yuan, down 41.07% from the same period last year; and basic earnings per share was 0.10 yuan per share. It is proposed to distribute 0.30 yuan (including tax) for every 10 shares in 2016.

Second, comments:

1. Income from major business

In terms of securities brokerage business, the company's securities brokerage business achieved a total operating income of 795.7618 million yuan in 2016, down 46.50% from the same period last year; the operating profit was 395.4444 million yuan, down 54.79% from the same period last year, mainly due to a sharp drop in net income from fees and commissions.

In terms of securities investment business, the cumulative operating income for the whole year was 79.3582 million yuan, down 92.32% from the same period last year, and the operating profit was 20.3426 million yuan, down 97.58% from the same period last year.

In terms of investment banking, the cumulative operating income for the whole year was 182.5168 million yuan, an increase of 90.70% over the same period last year, and the operating profit was 42.9583 million yuan, an increase of 525.78% over the same period last year.

In terms of asset management business, the operating income was 314.7255 million yuan in 2016, an increase of 59.52% over the same period last year, and the operating profit was 170.1547 million yuan, an increase of 42.86% over the same period last year.

2. The main business differentiation is significant.

As the market continued to fluctuate and adjust in 2016, market trading volume shrank sharply, so it should be normal for securities brokerage business and securities investment business income to decline. However, compared with the industry-wide average level of decline (49.99%), Pacific Securities's brokerage business declined slightly more than average, mainly due to an increase in operating costs. The sharp decline in investment business reflects that there is a certain deviation between the investment strategy and variety selection of proprietary business.

At the same time, Pacific Securities has seen substantial growth in its investment banking and asset management businesses. In 2016, the company's investment banking headquarters made substantial progress in mergers and acquisitions, bonds, ABS and other areas, completing an IPO (Xinguang Pharmaceutical) and a private rights issue (Wuyang Technology) and more than 150 various financial advisory and restructuring projects, resulting in a 525.78% increase in investment banking net profit compared with the same period last year. In 2016, the Asset Management headquarters issued 31 new collective products and 140 new targeted products. By the end of the year, the total scale of customer assets managed by the company was 161.833 billion yuan, an increase of 138.07% over the same period last year, of which the scale of collective products was 36.771 billion yuan, up 781.45% over the same period last year; the scale of targeted products was 124.584 billion yuan, up 95.26% over the same period last year; and the scale of special products was 478 million yuan.

The substantial increase in investment banking and asset management revenue, although not fully hedged against the decline in brokerage and investment revenue, laid a good foundation for business adjustment in 2017.

3. Business expansion is worth looking forward to

In 2017, in addition to having a good foundation for investment banking and asset management business, Pacific Securities will also focus on refinancing and issuing convertible bonds. Promote the establishment of Hong Kong subsidiaries and Thai joint ventures to complete the SPAC project. In addition, it will standardize the development of direct investment subsidiaries and complete the strategic layout of the company. The market is in the period of governance and rectification, and the expansion of these businesses will effectively improve the operating performance for the whole of this year.

4. Main risks

The main risk that Pacific Securities faces this year may come from two aspects: one is the risk of market holding adjustment; the other is the increase of its own operating costs and the deviation of investment strategy.