Event: Pacific Securities released its China report on August 24, 2016. The company's operating income in the first half of 2016 was 590 million yuan, down 68 percent from the same period last year, and its net profit was 150 million yuan, down 84 percent from the same period last year.

The commission rate of brokerage business is higher than the industry average. Under the influence of the market, the net income of fees and commissions in the first half of the year was 200 million yuan, down 68% from the same period last year. However, as the leading regional brokerage in Yunnan, the commission rate in the first half of the year is close to 0.055%. It is expected that the commission rate will not decline rapidly in the future and is expected to remain at around 0.050%.

In the first half of the year, the market share of the company's stock-based transactions exceeded 0.26%. As the light business department and Internet financial business continue to accelerate the layout, the market share is expected to increase to 0.28%.

The profit scale of credit business has increased steadily. In the first half of the year, the net interest income of credit business reached 500 million yuan, an increase of 40% over the same period last year. Benefiting from the replenishment of capital strength after the rights issue in January this year, the company's credit business at the end of the reporting period was 12.24 billion yuan, an increase of 0.3% over the end of last year, of which stock pledge was 10.24 billion yuan, an increase of 11% over the end of last year. Credit business is expected to continue to maintain growth momentum.

Investment banking is growing rapidly. In the first half of the year, investment banking revenue reached 80 million yuan, an increase of 191% over the same period last year.

The main reason is that the company's main underwriting projects increased significantly over the previous year, and the securities underwriting income reached 30 million yuan, an increase of 60.4 percent over the same period last year. The new third board recommendation listing business of 41 enterprises was completed, and the net income of financial consultants listed and supervised was 40 million yuan, an increase of 59% over the same period last year. The company provides enterprises with a series of services such as multi-channel financing, listing, additional issuance, mergers and acquisitions, while actively expanding new business areas such as new third board and asset securitization, investment banking business is expected to maintain a growth rate of about 190% in the second half of the year.

The securities investment business strives to reduce losses. Revenue from the securities investment business was-30 million yuan, down 104% from the same period last year. Affected by the market, the investment income is-40 million yuan. The company strives to reduce its loss in the second half of the year.

The scale of asset management business has gradually increased. Revenue in the first half of the year was 60 million yuan, down 58 percent from the same period last year. The asset management business started late but developed rapidly. At the end of the reporting period, the total size of the company's existing asset management plan was 129.7 billion yuan, of which the aggregate asset management plan management scale was 24.323 billion yuan, accounting for 18.8%. The insurance fiduciary management business is expected to become a new performance point in the second half of the year.

Based in Yunnan, the location advantage is significant. Backed by Yunnan Financial Special Zone, the company enjoys regional policy advantages, and 1/3 of its income comes from the province, benefiting from the opportunities brought about by the national "Belt and Road Initiative", the Diangui gold reform policy and the rapid development of securitization in Yunnan and Guangxi. The company not only works intensively in Yunnan, but also gradually radiates its business scope to Southeast Asian countries such as Laos.

Investment suggestion: buy-An investment rating, the company's EPS for 2016-2018 is expected to be 0.23,0.27 and 0.37 yuan, with a 6-month target price of 11 yuan.

Risk hint: market downside risk, enterprise operation risk, credit risk