The results in the first half exceeded expectations, mainly due to the reduction in business restructuring and impairment losses. From January to June 2016, the company achieved operating income of 40 billion and attributable net profit of 11.1 billion, up 5.8% and 32.8% respectively over the same period last year. The average ROE on an annualised basis for the first half of the year was 21.6 per cent, up 4.3 pct from last year's full-year ROE level (17.3 per cent) and higher than our previous forecast of 15.3 per cent ROE for the whole year. The growth is mainly due to the transformation of AMC's main business structure to acquisition and disposal to improve profitability, as well as the reversal of asset impairment losses related to acquisition and restructuring.

AMC's main business benefits from the "new normal" economy, and risk control remains stringent. In the first half of 2016, the non-performing assets operating sector of the company achieved operating income of 20.4 billion and pre-tax profit of 9.7 billion, up-2.1% and 46.4% respectively over the same period last year, accounting for 57% of the company's total pre-tax profit in the same period. Although the reversal of impairment losses on acquisition and restructuring non-performing assets in the first half of the year interfered with real profitability, we saw that the company still maintained a high provision coverage rate for acquisition and restructuring business (449%). We believe that the company's risk control is still strict and will fully benefit from the "new normal" of the economy through the transformation of acquisition and disposal business in the future.

Non-performing primary market of financial institutions, the focus of AMC business changed smoothly by the end of the second quarter, the data disclosed by the CBRC showed that the balance of non-performing loans reached 1.45 trillion and the non-performing loan ratio reached 1.75%. The non-performing supply of banks and other financial institutions continues to accelerate. Since the beginning of this year, the focus of the non-performing assets management sector of the company has shifted from the acquisition and restructuring business to the acquisition and disposal business. In the first half of the year, the non-performing assets of financial institutions increased by 79.6 billion, a sharp increase of 138% compared with the same period last year. We judge that most of them are disposed of in the acquisition and disposal mode, resulting in a sharp increase of 154% in the balance of acquisition and disposal non-performing assets (88 billion) compared with the same period last year. At present, the internal rate of return of the acquisition and disposal business is 16.2%, a slight decline of 80 bp compared with the same period last year. In the future, we are still optimistic about the prospect of this business and the continuity of the shift in the focus of the company's AMC business.

Risk hint

1) the sharp slowdown in the economy may lead to a continuous decline in the rate of return on the disposal side, affecting the company's profitability; 2) there is a "black swan" event in asset quality.

Fully benefit from the scarcity target of "Shenzhen-Hong Kong Stock Connect", maintain the "buy" rating excess return model to estimate the reasonable valuation of the company at HK $3.98, and is the pure AMC target of scarcity in the A-share market. The reasonable share price of the company has about 30% room for the previous price of HK $3.07 per share (closing price on August 30, 2016), and the company's board of directors has passed a resolution to issue A shares. We believe that the company has event catalysis and scarcity in the future, and will fully benefit from the "Shenzhen-Hong Kong Stock Connect" and give a "buy" rating.