Event: Zhongyuan Securities recently released its 2018 semi-annual report. The company achieved operating income of 870 million yuan in 2018, an increase of 2.7% over the previous year; net profit of the mother was 150 million yuan, an increase of 9.3% over the previous year. Total assets were 45.86 billion yuan, up 12.8% from the beginning of the period; net assets of the mother were 10.05 billion yuan, down 1.2% from the beginning of the period. Opinion: The scale of the company is expanding at an accelerated pace, and the tendency to focus on assets is obvious. As of the end of the reporting period, the company's total assets were 45.86 billion yuan, up 12.8% from the end of 2017, total liabilities were 34.54 billion yuan, a sharp increase of 18.3%, and owners' equity attributable to listed shareholders was 10.05 billion yuan, a decrease of 1.2%. In the current period, the company accelerated the expansion of asset scale through various financing methods. The payment of short-term financing, capital investment, and sale and repurchase of financial assets increased significantly by 98.1%, 118.2, and 50.7%, respectively, compared to the beginning of the period. As a result, the leverage ratio level rose markedly, rising 4.7 pct to 70.1% from 65.4% at the end of 2017 (excluding brokerage securities trading funds). Judging from the segment report, the company's capitalization trend is obvious. In the asset-heavy business, the self-operated investment business and credit business debt side increased by 54.6% and 13.4%, respectively, compared to the end of 2017, while the investment banking business in the asset-light business contracted, and both assets and liabilities fell by more than 90% compared to the beginning of the period. Self-operated investment later took the lead, and the share of asset-heavy businesses increased. In 2018H1, the company achieved operating income of 860 million yuan, an increase of 2.7% over the previous year. The growth rate of the asset-light business slowed markedly, while the growth rate of the asset-heavy business accelerated in the face of increased investment. The current brokerage business revenue fell 14.1% year on year, and its share of total revenue fell 5.3 pct to 27.23%, while the self-operated investment business later rose from 5.3% to 18.4%, further increasing the income ratio of the heavy asset business to 46.9%. The brokerage business was transformed into wealth management, and the market share of equity-based trading volume rebounded. In 2018H1, the company achieved brokerage revenue of 236 million yuan, a year-on-year decrease of 14.1%. During the reporting period, the company actively promoted the transformation and development of brokerage business, carried out comprehensive investment advisory services, and adopted business contests, exchanges and training for investors to strengthen the professional service capabilities of investment advisors. Through the transformation, the market share of the company's stock trading volume in the first quarter of 2018 was 0.54%. There was a rebound for the first time since 2014. Among them, the market share of fund trading volume rose to 0.79%, setting a record high, and the business transformation is beginning to bear fruit. Additional issuance projects achieved a breakthrough, and debt underwriting business declined year over year. In 2018, H1's investment banking business achieved revenue of 239.69 million yuan, an increase of 3.4% over the previous year. The market supervision situation in the first half of the year was strict. Of the 102 companies planning to IPO, 58 passed the meeting and 44 were rejected. The approval rate was only 56.86%. The company issued 1 additional project order in the first half of the year, achieving a breakthrough of zero compared to 2017. Currently, it is mentoring 6 IPO projects. In terms of debt underwriting, the company, as the lead underwriter, completed a corporate bond underwriting project and raised 800 million yuan in capital. The debt underwriting business raised a total of 2.08 billion yuan in capital during the same period last year, a decrease of 61.5% over the same period last year. The asset management business has been dechanneled and business revenue has been rising steadily. 2018H1, the net revenue of the company's asset management business was 364.19 million yuan, an increase of 15.2% over the previous year. In the context of an industry where the overall market is channeled, the company adapts to the current situation and moves closer to an active management model. At the end of this period, the company's pooled plan had a fiduciary capital of 11.87 billion yuan, an increase of 4% from the beginning of the period; the volume of fiduciary funds at the end of the targeted plan period was 11.41 billion yuan, down 14.1% from the beginning of the period, and the amount of fiduciary capital at the end of the special plan period was 830 million yuan, down 9.7% from the beginning of the period. Judging from the asset management product structure, the share of pooled plans had risen to 49.2%. We believe that the current trend in the transformation of the company's asset management product structure is good, and that expenditure on asset management business has increased by 9.2% in the current period, so there is still plenty of room for growth in asset management business. The financing business strengthens risk control, and equity pledges support performance. In 2018H1, the company's credit business achieved revenue of 250 million yuan, a year-on-year decrease of 22.3%. The decline in performance was mainly affected by the expansion of debt scale and increased interest expenses. The financing balance at the end of the period was 5.33 billion yuan, down 16.2% from the beginning of the period. The collateral ratio fell from 306.5% at the end of last year to 300.3% in 2018 H1, with little change. The financing term structure is clearly moving towards the short term, with financing within three months accounting for an increase of 20pct to 32% compared to the beginning of the year. The amount of financial assets bought and resold was 13.87 billion yuan, a sharp increase of 50.7% from the end of 2017. Among them, the average daily size of own capital in the first half of the year was 4.57 billion yuan, an increase of 88.5% over the previous year. According to estimates, the equity pledge collateral ratio fell from 221.7% at the end of last year to 195.4% in 2018 H1, and the overall risk is still manageable. The scale of investment business has increased dramatically, and securities investment+direct investment is a two-pronged approach. In 2018H1, the company's investment business achieved revenue of 160 million yuan, a significant increase of 256.9% over the previous year. According to the company announcement, the 2018 H1 self-operated equity category accounted for 10.94% of net capital, and the self-operated non-equity category accounted for 189.25% of net capital, a significant increase of 62 pct over the end of the previous year. During the reporting period, the company fully grasped the “stock boom, debt, and bullish” trend in the first half of the year and increased its investment in the bond market. The profit for the current financial instrument holding period was 270 million yuan, an increase of 26.4% over the previous year. The company also achieved rapid development in its direct investment business. The amount of long-term equity investment at the end of the period increased by 36.8% compared to the beginning of the year, and the direct investment business revenue was 98.817 million yuan, a growth rate of 34.7%, which is basically the same as the pace of expansion, and is still in a stage of rapid development. Conclusion: We are optimistic that after the transformation of the company's brokerage business to wealth management, it will drive a further rebound in stock trading volume and market share, and that the proprietary investment business is still in a stage of rapid growth, which will bring rich investment returns to the company. We expect the company's revenue in 2018-2020 to be 2.15 billion yuan, 2.52 billion yuan and 2.64 billion yuan respectively, net profit of 480 million yuan, 560 million yuan and 590 million yuan respectively, and EPS of 0.12 yuan, 0.14 yuan, and 0.15 yuan respectively, corresponding to PE 35 times, 30 times and 28 times, respectively. For the first time coverage, a “recommended” rating was given. Risk warning: further contraction of stock market turnover, risk of market fluctuations in proprietary business, stock pledge risk events, wealth management transformation falling short of expectations