Incident: On October 30, 2016, Luxin Venture Capital released its 2016 three-quarter report. The company achieved operating income of 140 million yuan in the first three quarters, down 1% year on year; other operating income of 580 million yuan; and net profit to mother of 330 million yuan, up 45% year on year. The venture capital business contributed to major profits, and investment returns grew rapidly. The company's venture capital business is the main source of profit. In the first three quarters of 2016, the company achieved investment income of 580 million yuan, an increase of 41% over the previous year. The rapid increase in the company's net profit in the first three quarters was due to dividends on marketable financial assets, increased investment income from disposal of long-term equity investments, and performance compensation received by the company. Venture capital projects are rich in reserves. In the first half of 2016, the company and various funds funded by the company as the main sponsor held shares in 9 listed companies, and a total of 18 investment projects were listed on the New Third Board. In addition, as of the first half of 2016, the company and the funds funded by the company as the main sponsor also held 9 proposed IPO projects. Of these, 1 had passed the review, 4 had been accepted, and 4 were receiving listing guidance. By providing multi-level value-added services, the company promotes the withdrawal of investment projects after listing to obtain investment income. The company is rich in reserve projects, which is conducive to the continuous release of performance. Venture capital funds are transforming to specialization and internationalization. (1) The company promotes the professional transformation of venture capital funds. The company's wholly-owned subsidiary Gaoxin Shandong Fujiao Group Dong'a Town Ejiao Company and Weihai State-owned Capital Operation Company jointly initiated the establishment of the Weihai Luxin Fuwei Equity Investment Fund, involving the health industry; plans to co-sponsor the establishment of the Shandong Luxin New Materials Venture Capital Fund with Weifang Zhilian Private Capital Management Co., Ltd., covering fields related to new materials; Gaoxin Dexing Youloka Mining Safety Engineering Co., Ltd. co-sponsored the establishment of the Civil-Military Integration Venture Capital Fund, which mainly invests in the civil-military integration industry. (2) The company's international strategic layout is being accelerated. In July 2016, the company plans to participate in investing in the US company Intarcia Therapeutics Inc., through its subsidiary Hi-Tech Investment. The Intarcia project is expected to be the company's first investment business in the US. In October 2016, the company announced that it would join other investors with the US China Economic Cooperation Group and Shandong Lingrui Equity Investment Fund Management Co., Ltd. to raise and establish a CECC Luxin Venture Capital Fund partnership. The initial scale is tentatively set at 700 million yuan. In principle, the investment amount of the fund in the US and China will be allocated 50%: 50%. The scope of investment will focus on innovative cutting-edge technology projects in the country's strategic emerging industries. Key areas include not limited to robotics, artificial intelligence, virtual reality, augmented reality, smart cars, the Internet of Things, big data and cloud computing, digital healthcare, biomedicine, medical devices and services. This cooperation will help the company improve its international investment capacity and achieve the company's international layout. The construction of a multi-level capital market is beneficial to the venture capital industry. In September 2016, the State Council issued “Certain Opinions on Promoting the Sustainable and Healthy Development of Venture Capital”, which proposed policies such as enriching venture capital entities and models, making full use of the functions of equity trading venues, and supporting state-owned enterprises to establish or participate in venture capital enterprises and parent funds, which have had a significant impact on the development of the industry. Furthermore, the chairman of the Banking Regulatory Commission also stated that banks in a position to do so should be allowed to set up subsidiaries to invest in science and technology innovation equity, and the entry of bank capital will provide a rich source of capital for the venture capital industry. Investment advice: Buy-A investment rating, 6-month target price of 27.19 yuan. We expect the company's EPS to be 0.62 yuan, 0.72 yuan, and 0.83 yuan respectively from 2016 to 2018. Risk warning: macroeconomic downside risk, industry risk, operational risk