Key investment events: On February 4, 2016, the company announced a non-public stock offering plan. It plans to raise no more than 4.35 billion yuan in total capital through non-public offerings to build integrated payment projects, commercial factoring projects, smart living platform construction projects, and operating channel construction projects. Through this fixed increase, the company aims to build a multi-level “scenario financial ecosystem” based on its IoT business and promote financial services. The company is a leading enterprise in the domestic IoT industry. On the basis of traditional advantageous businesses, in the past two years, the company has deployed smart lifestyle businesses such as food traceability, smart cities, and OTT (Internet TV), and at the same time, through mergers and acquisitions, payment company, and Zhongshan Desheng, leasing company, and Zhongshan Desheng, established small loan companies Zhongshan Zhongda and Zhongshan Chengda to lay out financial services business. The various internal and external layouts enabled the company to initially form an intelligent lifestyle with the Internet of Things and big data as the core of technology, use application scenarios in various fields, gather user traffic information, accumulate data through high-frequency card slot transaction scenarios, and provide credit-centered financial services to individual consumers and micro, small and medium-sized enterprises. Industry opportunities: scenario finance, new gold mines in the era of “asset shortage”: the domestic economy has entered a downward channel, and “good business” in the traditional sense has declined sharply; supply-side reforms, economic growth has gradually changed from “driven by investment” to “driven by consumption and innovation.” The supply of “investment-driven” assets is insufficient, and it is difficult for traditional financial institutions to obtain long-term assets such as “consumer credit and credit for small and micro enterprises” due to information asymmetry. In order to provide a buffer to the economy and continue to release money, the central bank's scissor gap has worsened the “asset shortage.” We believe that “scenario finance” enterprises that accumulate data through high-frequency trading scenarios such as the Internet, the Internet of Things, and cloud computing may find themselves in an era of huge profits in the medium to long term by exploiting long-tail assets. Company logic: Dahua Intelligence aims to build a “scenario finance” ecological chain covering the three levels of platforms, applications, and channels to comprehensively promote financial business. At the platform level, the company gathers traffic information from IoT users through multiple scenarios by constructing an open smart living platform. In the application layer, payment services, commercial factoring financial services, intelligent transportation services, etc. are provided to users in the scenario. At the channel level, by expanding channels, the company's famous brand awareness and market share are increased, and the company's sustainable development capacity is further enhanced. Profit forecast and investment advice: The target price for 6 months is 22 yuan. For the first time, coverage is given an “increase in holdings” rating. We forecast the profit of the company's traditional business and “scenario finance” business separately. Among them, the net profit contributed by the traditional business in 2016 and 2017 maintained a slight growth trend, at 250 million yuan and 280 million yuan respectively; considering the differences in the construction cycle of the four fixed increase projects, the net profit contributed by the new business in 2016 and 2017 was 300 million yuan and 750 million yuan respectively. Refer to the price-earnings ratio of similar listed companies corresponding to 2016 as a valuation reference. Traditional business 2016 Pex40, scenario financial business 2016 Pex60. We gave a valuation of 28 billion yuan for the next 6 months. Excluding this fixed increase of 4.35 billion yuan, the corresponding target price is 22 yuan, covering the first time, we gave it an “increase in holdings” rating. Risk warning: 1) the non-public offering was not approved; 2) the risk of implementing a fund-raising project; 3) systemic risk in the stock market.