Main points of investment:

The company has the highest quality department store property in Zhejiang Province, horse racing enclosure completed, high revaluation value. Hangzhou Mansion, which is controlled by the company, is built above the subway in Wulin business district, and is the focus of consumption of high net worth people in Zhejiang, with a total construction area of 180000 square meters. According to the performance, it is promised that the net profit of Hangzhou Building in 2016 will not be less than 270 million yuan. In addition, the company operates Xiebai Shopping Mall, Xiebaiyi Wudian and Bailan Xi Store, which are positioned as middle-and high-end urban consumption, with sound operation. The 100 Greentown Xizi International Project, which is 40% owned by the company, was completed in August 2015, with a total floor area of 280000 square meters, consisting of three towers TI, T2 and T3 and a commercial skirt at the bottom, including office buildings, medical-mall, serviced apartments and department stores. 501 City Plaza and medical-mall are scheduled to open in August and December this year, respectively. We conservatively estimate that the total self-owned property area of the company is 290,000 square meters, the revaluation value is 15.495 billion yuan, and the current market capitalization of the company is 7.679 billion yuan, with a reliable margin of safety.

To build a platform-based modern service group, health care, sports and other new economy has a broad market prospect. 1) build a medical service platform. On November 17, 2015, the company announced that it planned to jointly invest with Baida Group and Dean Diagnostics to set up Hangzhou full-process International Health and Medical Management Center Co., Ltd. (originally tentatively named Zhejiang Yihe International), of which the company contributed 27 million yuan and accounted for 45% of the registered capital. Dean Diagnostics and the 100 largest groups account for 35% and 20% of the equity respectively. 2) inject sports state-owned assets, or speed up integration. On January 11, 2016, the company announced that it planned to invest 9.2921 million yuan to increase the capital of Hangzhou Yuesheng Sports Brokerage Co., Ltd., with a shareholding ratio of 69.5%, which was completed on March 28. The former wholly-owned controlling shareholder of Yuesheng Company is Hangzhou Sports Development Group, which is rich in venue resources. We believe that the current rapid expansion of China's sports industry under the guidance of the government and market linkage coincides with Hangzhou hosting the G20 International Economic Cooperation Forum in 2016 and the Asian Games in 2022. The company may continue to actively explore business opportunities for the integration of the sports industry in the later stage.

After the management adjustment is in place, the pace of company transformation is expected to speed up. In addition, the reform of state-owned enterprises is worth looking forward to. In March 2015, the chairman of the company was changed from Zhou Zili to Tong Minqiang, and Zhang en and Ni Weizhong were replaced by Yu Yong and Ren Haifeng among the members of the board of directors. On April 20, 2016, the company's board of directors elected Yu Yong as vice chairman and appointed Bi Ling as the new secretary of the company. We believe that after the company completed the injection of 60% equity in Hangzhou Building in 2014, realizing the transformation of "snake swallowing elephant", most of the new executives are the former management of Hangzhou Building, which is a team of professional managers with high executive ability and practical work. Its salary is also quite competitive in the industry. According to the 2015 annual report, the annual salary of the chairman and vice-chairman of the company is 4.01 million yuan, and that of many senior executives is more than 1.8 million. From the perspective of national reform, Hangzhou Business Travel, the major shareholder of the company, occupies the main commercial and tourism resources in Hangzhou and has a strong resource endowment; the company is the only commercial retail listing platform under Hangzhou SASAC, and the securitization rate is expected to be further improved.

Profit forecast and valuation: we forecast that the company's operating income from 2016 to 2018 will be 56.47,62.08 and 6.579 billion yuan, and the return net profit will be 2.54,3.23 and 365 million yuan, an increase of 12.2%, 27.3% and 12.9% respectively over the same period last year. The corresponding pre-valuation PE is 0.35,0.45,0.51 yuan, respectively. According to the 45 department store listed companies in the retail industry, we selected 5 comparable companies with a similar transformation direction as comparable companies, and the average PE of comparable companies in 2016 was 38 times. According to the valuation of comparable companies, we gave the company 38 times PE in 2016, with a market capitalization target of 9.652 billion and a current market capitalization of 7.786 billion. There is 23.96% room for growth and a "overweight" rating.