Incidents Recently, China Reserve Co., Ltd. released a semi-annual performance reduction report. It is estimated that net profit for the first half of 2017 will be reduced by about 80% compared to the same period last year. Net profit after deducting non-recurring profit and loss is about 83 million yuan, an increase of about 60% compared to 54.15 million yuan in the same period last year. The first half of the year achieved net profit of 409.86 million yuan and earnings per share of 0.1,863 yuan. The main warehousing business is developing steadily. The relocation of the old warehouse welcomes opportunities. The company is a modern integrated logistics enterprise with integrated logistics, logistics trade, financial logistics, and logistics real estate, etc., as its main business, and also has service functions such as logistics technology, e-commerce, financing and loans. It is a large-scale national warehousing and logistics enterprise. The company's main business is based on warehousing, is not limited to a single form of transaction, and is gradually expanding to surrounding businesses. The 2017 semi-annual performance report predicts that net profit for the first half of 2017 will fall 80% year on year, mainly due to the large amount of land compensation income received in the same period last year. Net profit after deduction increased from 51.54 million yuan in the same period last year to 83 million yuan, an increase of about 60% over the same period last year. According to the disclosure of the first quarterly report, the main reasons for the increase in operating profit are the expansion of business scale, the rise in prices of the main types involved, and the sharp expansion of the business scale of China Storage Nanjing Smart Logistics Company. It is expected that the second-quarter earnings report will continue the positive trend in the main business in the first quarter. In recent years, due to various factors such as urban planning adjustments, traffic control, the demolition of special railway lines, and the withdrawal of storage functions from the city to the suburbs, etc., the company will have several warehouses that need to be relocated, upgraded, or developed as a whole due to urban planning adjustments. The land occupied by the company's old depot was demolished, and corresponding land compensation income can be obtained. In 2016, it received land compensation revenue of 1,018 million yuan. At the same time, due to business requirements, the old warehouse needs to be upgraded, and the company used the demolition plan to develop and renovate the current site and build a new logistics base. At present, the China Reserve has completed the first phase of warehouse renewal and upgrading, and the share of new warehouses has reached more than half. The central warehouse in the city center was replanned and redeveloped by the government, and the original warehouse land received compensation for the demolition. In the bidding for land for old warehouses, the company relied on its efficiency to generate revenue and tax advantages, and successfully bid for many properties. At the same time, industrial land for warehouses was regained in suburban areas, and warehousing operations continued. The company is currently in a transition period to e-commerce logistics and smart logistics development. Land subsidies arising from the relocation of old warehouses have provided capital turnover support for the company's transformation and development. Prologis, a leader in logistics real estate, was introduced to achieve a strong alliance. In July '17, a consortium composed of Vanke and Prologs' current CEO Mei Zhiming, Houpu Investment, Gao Lin Capital, and Bank of China Investment plans to privatize Prologis and carry out a full acquisition at a price of about US$11.6 billion. As a leader in the logistics real estate industry, Prologis's acquisition represents the market's recognition of the development potential of the logistics real estate industry. E-commerce has led to the development of the animal logistics industry. High-efficiency integrated professional logistics real estate with integrated warehousing and distribution will gradually replace the original low-end warehouses with peer-to-peer connections, saving land resources while gaining more market growth. In August 2014, the company issued 168,5482 million shares to Prologue at a price of 11.82 yuan/share. Prologis became the company's second largest shareholder, accounting for 15.39% of the company's shares. This targeted increase raised a total capital of 1,992 million dollars to invest in 6 projects, including the China Storage Liaoning Logistics Industrial Park project and the China Storage Shanghai Fengxian District Logistics Base Project. The project construction period is 2-3 years. In 2016, the company and Prologis, the second largest shareholder, have cooperated and communicated in the development of warehousing and logistics business and optimization of the remuneration system, as agreed in the “Strategic Cooperation Agreement”. At present, the company and Prologue have reached a preliminary agreement on the proposed establishment of a joint venture, and the two sides are actively promoting the establishment of the joint venture. Prologis has efficient management efficiency and a professional team in site selection planning, project construction and management. The company not only has high service quality, but also has a strong ability to develop new customers. The China Reserve introduced Prologis as a strategic investor, learned from its advanced management experience, improved the corporate governance mechanism, and at the same time exploited the advantages of central enterprises directly under the China Reserve in terms of land acquisition capacity and land use costs to achieve a strong alliance. Strategic transformation has high potential. Mixed transformation catalyzes structural changes in equity, and the company gradually expands its business chain based on warehousing business to form a comprehensive logistics service enterprise integrating warehousing, logistics, trade, finance, etc., and attaches importance to the development of smart logistics and e-commerce logistics. At the same time, it relies on the China Storage Credit Platform to actively build a platform economy, connect car-free cargo owners and car-free carriers, and build a new model of goods market supervision. Smart logistics is an important breakthrough in the company's transformation and upgrading. The company currently uses the “JD model”. First, the transportation-Internet model, which establishes China Storage Self-Transport to help cargo owners deliver goods through Internet orders; the second is the warehousing-self-storage model, where China storage provides goods and finds suitable transportation for car owners. Judging from JD's previous experience, the second model has more prospects for development. In the 2017 quarterly report, the business scale of China Storage Nanjing Smart Logistics Company expanded dramatically, driving a sharp increase in the company's revenue, an increase of 88% over the same period last year. The smart logistics industry, combining e-commerce logistics and logistics real estate business, will become the main driving force for the company's future performance. Although the current transformation process is slow, the company has a solid foundation and advantages in land, resources, and background. The transformation direction caters to the trend of value upgrading, is in line with market expectations, and has long-term development potential. The parent company, Chengtong Group, was identified by the State Assets Administration Commission as the sponsor of the Central Enterprise Restructuring and Reform Platform Fund in September 2016, with a total scale of 350 billion yuan. The equity cooperation between the company and Prologis and the strategic plan for transformation and upgrading are in line with the direction of operation of the fund, and may become the target of support for further mixed reforms. Furthermore, Chengtong Future is positioned as a platform for the operation of state-owned capital. It only participates in enterprises and does not hold shares. There is some room for imagination about future changes in the company's control. The profit forecast anticipates that the company's core warehousing business will continue to develop steadily, and work with Prologis to achieve a strategic transformation into e-commerce logistics, smart logistics, and logistics real estate. At the same time, the company's land value is underestimated, combined with expectations of mixed reform of parent company Chengtong, which is beneficial to future market development. The company's main business has reached an inflection point, and there is still uncertainty about land subsidies based on the situation in the first half of the year. It is estimated that the company's EPS from 2017 to 2019 will be 0.25 yuan, 0.25 yuan, and 0.24 yuan respectively, with a target price of 10.5 yuan, coverage for the first time, and a “increase in holdings” rating. Risks suggest that transformation and development are falling short of expectations, etc.