Key points 1. The restructuring is injected into Huaxin Securities, and the securities business becomes the main business. In this plan, Huaxin Co., Ltd. will issue 4 billion yuan (issue 5.37 yuan shares, price 9.6 yuan/share) to Yidian Group, Feilo Audio, and Shanghai Beiling, and use 900 million yuan of real estate development assets to purchase 92% of Huaxin Securities for 4.9 billion yuan. At the same time, supporting financing will increase by nearly 1.3 billion yuan (issue 120 million shares, price 10.6 yuan/share) to supplement the net capital of Huaxin Securities. After the transaction is completed, Huaxin Co., Ltd. will hold 100% of Huaxin Securities. The company will hold 100% of Huaxin Securities's shares. Change to The situation is dominated by securities business, leasing management of small holdings and other businesses; at the same time, the share capital has also expanded to 1,061 million shares, and the market value has expanded to 12.7 billion yuan. At the same time, the net assets of Huaxin Securities will also increase from 3.3 billion yuan to 4.6 billion yuan. Furthermore, after this transaction, Yidian Group directly held 27.5% of the shares in the listed company, and indirectly held 25.8% of the shares in the listed company through Huaxin Real Estate and Feilo Audio. In total, it held 53.3% of the shares in the listed company, and is still the controlling shareholder of the listed company. 2. Huaxin Securities has a nationwide layout, and there is a lot of room for subsequent development. As a comprehensive securities company, Huaxin Securities's business scope covers all traditional business types of securities companies. Over the past three years, the company's branches have rapidly expanded from 21 to more than 60, covering more than 40 large and medium-sized cities, and initially completed the national strategic layout. At the same time, the company is committed to business diversification and innovative development. While continuously improving the depth of existing business and services, the company is actively expanding into new business fields. In 2016, the company was named one of the top 20 gold medal market makers in the new third board and the best Chinese private equity trading service broker of the year. Currently, the expansion of the company's business scale and the development of capital intermediation and innovative businesses are all subject to capital restrictions. After asset securitization is completed, the company's capital strength and financing channels will be significantly enhanced, and the company's business development space is expected to be greatly improved. 3. Investment suggestion: The undervaluation injection of Huaxin Securities lays large room for valuation improvement, and reaffirms that in this restructuring plan, Huaxin Securities's 100% equity valuation corresponds to 5.4 billion yuan, corresponding to PB nearly 1.7 times. The horizontal comparison is currently lower than 2.7 times that of the brokerage industry, 4.2 times that of small and medium-sized brokerage firms, and 2.4 times the acquisition of brokerage assets in the past three years. The undervaluation injection has also created a lot of room for valuation improvement; given the minimum net assets of the Huaxin Securities industry, the minimum market value in circulation, and relatively small supporting financing amount, we returned to Huaxin Securities after supporting financing The net asset is 4.6 billion yuan and the PB valuation is 4 times higher than the industry valuation. It is estimated that Huaxin Securities has a reasonable valuation of about 18 billion yuan, plus the remaining holding property valuation of 2 billion yuan, a total valuation of 20 billion yuan. Compared with the current market value of 12.7 billion yuan after stock expansion, there is room for 57% increase. Until the transaction is completed, we will not adjust our profit forecast and still maintain the company's 2016-17 earnings per share of 0.34 and $0.50, respectively, which reaffirms our highly recommended rating. 4. Risk warning: The M&A and restructuring process fell short of expectations.