Report Highlights Event Description Hengbao Co., Ltd. released its 2015 three-quarter report. The report shows that in the first three quarters of 2015, the company achieved operating income of 1,251 billion yuan, an increase of 23.72% over the previous year; realized net profit attributable to shareholders of listed companies of 226 million yuan, an increase of 25.13% over the previous year; and realized net profit attributable to shareholders of listed companies after deduction of 209 million yuan, an increase of 24.25% over the previous year. In the first three quarters of 2015, the company's fully diluted EPS was 0.32 yuan. Furthermore, the company released the 2015 full-year performance forecast, and expects the company to achieve net profit of 351 million yuan to 409 million yuan attributable to shareholders of listed companies throughout 2015, an increase of 20%-40% over the previous year. Incident review Revenue continued to grow rapidly, and performance increased at an accelerated pace: The company's revenue performance in the first three quarters of 2015 all achieved rapid growth. Among them, net profit for the third quarter of 2015 increased 27.53% year on year, achieving accelerated growth. The reason for the increase in revenue is that the volume of financial IC cards shipped has increased rapidly, mobile payment cards have begun to be shipped in batches, and the tax control board business has provided the company with a certain increase in revenue. The main reasons for the increase in net profit are: 1. At the same time as revenue was growing, the company strengthened cost and expense control, which caused the period expense ratio to decrease by 0.68 percentage points; 2. Investment income increased by 43.45% year on year and non-operating income increased 62.16% year on year, providing strong support for net profit growth. The smart card industry has maintained a high level of prosperity, and new business development is progressing steadily: We reaffirm that the smooth development of the company's smart cards and new business is sufficient to support the continued rapid growth of the company's performance. Specifically: 1. As a leader in the smart card industry, the company will definitely benefit fully from the boom in the financial IC card and mobile payment card industry; 2. In the context of “business transformation and growth”, the company is actively developing tax control business, and the tax control board has gradually become the company's main revenue and profit growth point; 3. Focusing on the mobile payment industry, the company has developed a comprehensive mobile payment management platform, and Internet financial terminals have achieved batch shipments. In September 2015, the mobile payment security industry fund reached 107 million yuan. It is foreseeable that as industrial funds arrive one after another, the pace of the company's expansion through epitaxial expansion will accelerate markedly. Lay out Internet finance to create a service platform for micro, small and medium-sized merchants: In May 2015, the company decided to raise 1.2 billion yuan, and 200 million yuan respectively for the construction of a service network and system for micro, small and medium-sized merchants, acquire 51% of the shares of Shenzhen Yikai Co., Ltd., and the overall solution development and industrialization of mPOS solutions to create a service platform for micro, small and medium-sized merchants, and plans to reach 1 million active users in the next three years. Currently, the company's micro, small and medium-sized business customers are expanding steadily, and business development prospects are worth looking forward to. Investment advice: We are optimistic about the company's development prospects. We expect its fully diluted EPS in 2015-2017 to be 0.56 yuan, 0.73 yuan, and 0.95 yuan respectively, reaffirming its “buy” rating.