On August 24, the company released its 2018 mid-term report that the company achieved 1.6 billion yuan (YoY-31%) in operating income and 900 million yuan (YoY-38%) in non-return net profit in the first half of this year. By the end of the first half of this year, the company's total assets reached 26.3 billion yuan, an increase of 5% over the same period last year. We believe that the core changes in the company's report are as follows: (1) the financing side has experienced the pain of transformation. Due to the impact of strict financial supervision and the expansion of market credit risk, trust remuneration decreased by 11% in the first half of the year compared with the same period last year. (2) the scale of active management is the same, and the channel is flowing back; the scale of company management has increased to 251.6 billion yuan (YoY5%), of which 62% is active management, which is slightly lower than at the beginning of the year. (3) the poor performance of the investment side, the investment loss of 70 million yuan (YoY-121%) caused by the decline in the secondary market; the 38% decrease in net interest income compared with the same period last year, which is caused by the tightening of funds and the substantial increase in the scale of interbank lending; in addition, we also see potential hidden worries: (1) risk accumulation in real estate trusts, tightening regulatory signals; (2) breaking new exchange, net worth, great pressure on the retail channel end (3) the fluctuation of equity market affects the investment end and so on.

The financing side has experienced the throes of transformation and is expected to improve marginally in the second half of the year. In the first half of 2018, the company realized a fee and commission income of 2.1 billion yuan, a decrease of 13% compared with the same period last year, of which the handling fee and commission income in the second quarter was only 150 million yuan. We believe that the main reasons are: (1) with the implementation of the new regulations on asset management at the end of April, the company has comprehensively regulated multi-tier nesting, capital pool, channelization and other issues, and the transitional adjustment of new and old products has led to a decline in revenue. (2) the credit risk of the market expanded in the first half of the year, and the risk control of the trust industry became stricter, coupled with the substantial reduction of funds from banks, etc., so that the issuance scale of trust products shrank, and the issuance scale of collective trust products in the first half of the year was 94.8 billion yuan (YoY-40%). (3) with the implementation of the new rules on capital management, the rate of return on trust declined as a result of capital leverage and nesting requirements. However, with the marginal relaxation of financial regulation and the easing of market credit risk, it is expected that the structure of trust products will continue to optimize in the second half of the year, and the establishment and issuance scale of trust products will be warmed up, which will help to improve the income of trust business.

The scale of active management is the same as that at the beginning of the year, and the supervision of real estate trusts is tightening. As of the first half of this year, the trust assets managed by the company were 251.6 billion yuan (YoY8%), of which 156 billion yuan were actively managed, basically the same as at the beginning of the year. On the other hand, the scale of the company's channel business is relatively small, and it is limited by the new regulations on asset management, so it has returned in the first half of the year. In terms of active management, by the end of 2017, real estate accounted for 23% of trust assets, which is still relatively large. The real estate trust policy has tightened in the second half of the year, and the pressure on performance has increased. In addition, the company increases investment in five core industries, such as new energy and big health. we believe that long-term industrial investment is better than the development of corporate trust, but the short-term contribution profit is relatively limited. We expect the proportion of active management of the company to increase steadily, and the investment of trust funds will be more diversified and reduce the risk of real estate trust business.

The investment business has performed poorly and its risk exposure has narrowed. The stock market performed poorly in the first half of this year, with the Shanghai Composite Index falling 14% and the company's fair value loss of 430 million yuan. In order to reduce equity exposure and guard against liquidity risk, the company has taken the initiative to reduce the proportion of equity holdings, with 3.4 billion yuan of financial assets measured at fair value and whose changes are included in the current profit and loss, 37% less than at the beginning of the year. Due to the depressed stock prices in the secondary market, the reduction of equity assets led to investment losses of 70 million yuan. In addition, the company's net interest income was 60 million yuan (YoY-38%), mainly due to the tightening of market funds and increased demand for business adjustment funds in the first half of the year, resulting in a substantial increase in interbank lending interest expenses. We expect marginal improvement in investment revenue as the company's equity exposure narrows, the cost of capital falls, and the equity market is expected to pick up.

With diversified financial layout, major shareholders are firmly optimistic about the value of the company. The company actively participates in financial companies to create a diversified financial platform. The company participates in China CITIC Bank Corporation International, Yingkou Bank Capital increase and shares in Bohai Life, which is expected to form a multi-wheel drive of performance. Major shareholders promise not to reduce their holdings and lift the restrictions within 2 years, accounting for 30% of the total tradable shares, which is optimistic about the long-term growth value of the company. We believe that in the short term, the company's operating performance is affected by financial regulatory policies and the transformation of the trust industry. In the long run, we believe that the company is expected to benefit from the characteristics of a high proportion of active management and flexible operating mechanism, and has a long-term competitive advantage.

Investment suggestion: buy-An investment rating, the net profit of Anxin Trust from 2018 to 2020 is expected to be 1.7 billion yuan, 1.9 billion yuan and 2.2 billion yuan respectively, the EPS is 0.31,0.34,0.39 yuan respectively, and the six-month target price is 8 yuan.

Risk tips: market risk, macroeconomic decline, strict policy supervision.