Investment highlights: The company's main assets are hotel properties and real estate. The company has 11 five-star hotels (nearly 5,500 guest rooms) and 3 four-star hotels (nearly 700 rooms); most are located in Hunan (mostly in Changsha), and a few in cities such as Beijing and Wuhan. The real estate business has an inventory of 2.3 billion yuan. With the exception of Beijing Jinfang Building (the purchased Lanwei Building, with a book value of 1.06 billion yuan, holding 43.4% of the shares), the rest is in Hunan (covering an area of 1,260 acres). How much is the current business worth? Affected by the double downturn in hotels and real estate, it is difficult to make a profit, and the replacement cost method of valuation is more feasible. Currently, the investment amount for a single room in a five-star hotel is about 1.5 to 2 million yuan (including land price), and the hotel is revalued at 8.8 billion yuan. Real estate is valued at around $3.26 billion — Beijing Jinfang Tower is valued at about $2 billion at market price, and the rest at book value. Considering book cash of nearly 1.8 billion yuan, interest-bearing liabilities (including those owed to major shareholders) of 5.47 billion yuan, and minority shareholders' equity valuation of 1 billion yuan, it is estimated that the reasonable value of the current business is about 8.2 billion yuan. The current market value of the existing business alone is not underestimated. The focus is on transformation: the current model is difficult to adapt to future development: the company expands with the “hotel+real estate” model, but as hotels and real estate fall into a double slump, it is difficult to continue; moreover, the company is burdened with heavy debt and is difficult to support. Operational difficulties forced reforms and set a benchmark for state-owned assets reform in Hunan: In November 2015, the company completed a fixed increase of 300 million shares to Huaxin Hengyuan, raising a net capital of 1,638 billion yuan, accounting for 29.44% of the total share capital (the majority shareholder Huatian Industrial Group holds 32.48%), becoming a benchmark for state-owned assets reform in Hunan. Optimization of the board of directors and management: Huaxin Hengyuan sent 2 directors to the company (8 board seats, 4 sole directors), and the actual controller went to the board of directors; Huaxin Hengyuan sent 1 executive vice president and 1 vice president. The company's transformation has already begun: after completing the fixed increase, the company officially entered the pension industry, relying on the 7-square-kilometer Haitang Hot Spring Resort (1 hour's drive from Changsha); invested 3 million yuan to jointly establish Handang Network Technology Co., Ltd. with 5 leading domestic hotel companies including Kaiyuan. The financial side is being improved, and the material guarantee for transformation: the fixed increase is completed, and the company's capital side is effectively improved; if the Beijing Jinfang Trade Building is approved and sold smoothly, the company's balance sheet will basically be repaired; the capital expenditure requirements for the existing business have been drastically reduced, and it can bring positive cash flow. “Buy” rating, target price 14 yuan. We believe that traditional business provides some value support, while transformation brings hope and is in line with market preferences. For the first time, we gave a purchase rating of 4.5 times PB (when the fixed increase is completed), and the target price is 14 yuan. (We expect 2015-17 EPS to be 0.00, 0.03, 0.05 yuan, respectively). Risk warning: The path of transformation may have twists and turns, management needs to work out, short-term profitability is weak and mainly depends on real estate. The risk of being affected by ST is limited and systemic risk using the replacement cost method to estimate the value of existing businesses.