Guancheng Chase (600067.CH/RMB 5.89, purchase) announced that the controlling shareholder Fujian Fengrong Investment Co., Ltd. increased its holdings of Guancheng Chase A shares by 1,664,500 shares through the Shanghai Stock Exchange trading system on February 6, 2018, accounting for 0.11% of the company's total share capital. Fengrong Investment plans to take the opportunity to increase its A-share holdings of the company within 12 months from February 6, 2018. The cumulative increase in holdings is not less than 1% of the company's total share capital, and not more than 2% of the company's total share capital (including the amount already increased). We believe that at a time when the market is being drastically adjusted, the increase in holdings of the company's controlling shareholders shows management confidence, and also shows that the company's current market value is clearly discounted from a reasonable valuation level. According to the plan to increase holdings, it is expected that the majority shareholders will still have the amount to increase their holdings by at least 13 million shares in the future. We believe that the company's high-quality assets are significantly underestimated. The real estate business RNAV reached 13.6 billion yuan, which is nearly 40% off the current market value of 9 billion yuan, while the net profit contribution of the new energy business in 18 years is expected to be close to 100 million yuan. The new energy and real estate business is two-wheel drive. We reaffirm the company's buying rating.

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1. Shareholders increase their holdings and promise not to reduce their holdings, demonstrating their confidence in the company's development. Prior to this increase in holdings, Fengrong Investment and its co-actor, STARLEX LIMITED, held a total of 507,736,031 shares of the company, accounting for 34.03% of the company's total share capital. Furthermore, Fengrong Investment and its co-actor, STARLEX LIMITED, promised not to reduce its holdings of the company's shares during the implementation period of the increase and within 6 months after the increase was completed. The increase in shareholders' holdings is based on a reasonable judgment on the company's investment value, showing confidence that the company will continue to develop steadily in the future.

2. The first phase of the 0.9 GWH lithium battery project was officially put into operation, and the new energy business could contribute nearly 100 million dollars in net profit in 18 years.

At the end of 2017, Guancheng Ruimin, a subsidiary established by the company and Fujian Investment Box, was officially put into operation. Through Guancheng Ruimin, the company entered the power lithium battery business field to lay out the new energy industry chain. The first phase of the lithium battery project has been officially put into operation, and the production capacity of the first phase is 0.9 GWH; according to the project construction site plan, the long-term planned production capacity will reach 5.6 GWH. In terms of orders, the company's production of lithium manganate batteries for pure electric city buses declared by Yaxing Bus in '17 achieved a breakthrough of zero in the company's ancillary products in the vehicle announcement. It is expected that the advantages of equity cooperation with Fujian Investment will gradually become apparent in terms of channels in the future. According to our current average price estimate of 1.3-1.5 yuan/WH, it is estimated that sales revenue will exceed 1 billion yuan after delivery next year, and net profit can reach 150 million yuan according to the industry's average net interest rate of 15%. At the same time, the company stated that it will further expand the scale of production capacity by speeding up later project construction or joint ventures, mergers and acquisitions, etc. Based on existing capacity planning and potential expansion plans, we expect the long-term renewable energy business to achieve a sales scale of 8 to 10 billion yuan.

3. The value of real estate resources is greatly undervalued, and employees' shareholding prices lock in a margin of safety. The company's real estate business continues to be meticulous, focusing on “Greater Beijing and Greater Nanjing”. Currently, the cost of land acquisition for stock projects is low. We estimate that the settlement value of goods exceeds 30 billion yuan, RNAV136 billion yuan. Currently, the real estate business with a market value of 9 billion yuan alone is discounted by nearly 40%, and the net ratio of net assets of 7.2 billion yuan is only 1.9 times; while the company's real estate business has gradually entered the settlement period since '17, and net profit is expected to continue to be released at an accelerated pace. At the same time, the average price of increasing shareholding in the company's previous two rounds of employee stock ownership plans was 7.67 yuan/share and 7.34 yuan/share, respectively, tied to the interests of various parties, providing a very high margin of safety. We believe that the value of the company's real estate resources is currently significantly underestimated. At the same time, the new energy business is officially put into operation and has begun to contribute to incremental performance. We reaffirm the company's buying rating and suggest a low price layout.