Events:

Tianye Co., Ltd. released its semi-annual report for 2016: in the first half of the year, the company achieved an operating income of 874 million yuan, an increase of 124.8 percent over the same period last year, and a net profit of 68.5 million yuan, an increase of 8 percent over the same period last year, a decrease of 27.3 percent over the same period last year. The weighted average ROE was 3.78 percent, a decrease of 6.48 percent over the same period last year.

The company plans to invest RMB 51 million to set up a wholly-owned subsidiary Jirui Mining, accounting for 100% of the registered capital.

The company plans to increase the capital of the subsidiary Boshen Lease by US $37.5 million, and the wholly owned subsidiary Feimaile plans to increase the capital of the Boshen Leasing by US $12.5 million. After the completion of this capital increase, the registered capital of Boshen Lease will increase from the current US $30 million to US $80 million. The company holds a 75% stake in Boshen Lease, and the company's wholly-owned subsidiary, Faimale, holds a 25% stake in Boshen Lease.

Main points of investment:

"Real estate + mining + finance + venture capital" four-round linkage, multi-engine to boost performance. In the first half of 2016, the company's operating income increased by 124.8% compared with the same period last year, and its net profit increased by 8% compared with the same period last year, of which the real estate business, mining business and financial business accounted for 71.6%, 20.6% and 7.8% of the revenue in the first half, respectively. The company's real estate business was affected by the decrease in the proportion of revenue from shops with higher gross margin and the decline in gross profit margins of commercial office buildings and residential buildings. The gross profit margin in the first half of the year decreased by 16.9 percentage points to 21.6% compared with the same period last year, while the gross profit margin in mineral business increased by 3.8 percentage points to 49.2%. This is mainly due to the increase in sales of valuable rare element ores in Mingal. The proportion of company fees rose to 19% from 15.9% at the end of last year.

The provincial inland production projects are accelerated and the strategic adjustment of the layout is steadily expected. In the first half of the year, the company realized real estate business sales income of 679 million yuan, an increase of 164.2% over the same period last year. In the first half of the year, the company had pre-sold area of 1.298 million square meters and received accounts of 1.13 billion yuan. As of the end of June, the company's salable area was 451100 square meters. In view of the future real estate business strategy, the company will accelerate the layout of first-tier cities and obtain high-quality projects in key cities as soon as possible through equity acquisition, cooperative development and other diversified ways. The company has acquired the Yangtai Villa project through the cooperative development of non-agricultural construction land in June this year and successfully entered Shenzhen. In addition, in July, the company invested 24 million yuan to set up Beijing Tianhui Real Estate (40% equity). It has laid the foundation for the next step to develop the real estate market in Beijing.

The rising price of gold drives a big increase in mineral performance, and epitaxial acquisitions are expected to increase profit contribution. In the first half of the year, Mingal achieved an operating income of 195 million yuan, an increase of 56.14% over the same period last year, and a net profit of 76.989 million yuan, a substantial increase of 174.93% over the same period last year. In addition, Mingal acquired the Australian Pajingo project in August with a transaction consideration of A $52 million. This extension acquisition will increase Mingal's gold metal reserves by 574 million ounces and contribute A $112 million (equivalent to RMB 566 million) to gold sales during the year. In addition, the company's investment in Shandong Jirui Mining Industry will further expand the company's mining development space, strengthen the company's mining investment and financing operation capacity, and enhance the company's market competitiveness in the mining field.

The financial business is taking shape, and the layout of the venture capital field is clear. The company completed the merger of Tianye small loan and Boshen lease in the first half of the year, and the financial business contributed 74.26 million yuan in income, of which the net profit margins of Tianye small loan and Boshen lease were as high as 48.5% and 58.5% respectively. In addition, the company increased its capital of Wanhe Lease with 159 million yuan in June and currently holds 15% of its equity, and recently announced that the company and its wholly-owned subsidiaries plan to increase its capital to Boshen Leasing, increasing its registered capital from the current US $30 million to US $80 million. In addition, the company has further improved the layout of the financial industry by participating in the establishment of Hengxin Fund to get involved in the public offering fund business. In the field of venture capital business, the company mainly invests in high-quality enterprises in the medical and Internet fields, among which Huixin participated in the Qihoo 360 privatization project with US $89.714 million through Shenzhen Tianying Huixin. According to the progress of the company's announcement, Qihoo 360 has completed the delivery of overseas equity in Tianjin Qixin Zhicheng and Tianjin Qixin Tongda, and capital appreciation gains are expected.

Profit forecast and investment rating: according to the progress of the company's real estate project settlement in the first half of the year, we raised the real estate sales income in 2016 to 1.199 billion yuan, and revalued the NAV value of about 4.26 billion yuan without including the land value-added portion of first-tier cities; and estimated the reasonable market value of the gold business at 10.53 billion yuan (see the text for the specific estimation process). Without taking into account the investment income of the company's venture capital business, the company's market capitalization is conservatively estimated at 15.67 billion yuan, corresponding to the target price of 17.7 yuan per share, which is still 30% higher than the current value. we predict that the company's EPS will be 0.18,0.20,0.22 yuan respectively from 2016 to 2018, corresponding to 75,67.7 times and 62.6 times PE respectively, maintaining the "buy" rating.

Risk tips: gold price fluctuation risk; overseas business development risk; 360 return to A-share process is not as expected risk; Internet finance, financial leasing industry policy risk.