Event: according to the company's annual report, in 2019, the company achieved an operating income of 24.6 billion yuan (YoY+61%, comparable company: investment + 65% / Galaxy + 72%), a net profit of 5.7 billion yuan (YoY+38%, + 65% / Galaxy + 81%), and a weighted average ROE of 7.4% (YoY+1.2pcts, investment ROE9.5%/ Galaxy ROE7.6%). We believe that the company's investment highlights are: (1) the first batch of funds to invest in the pilot qualification, the company has a good foundation of brokerage business. In 2019, the company's brokerage business income market share reached 4.3%, the number of business departments, the number of customers and the strength of research institutes are in the forefront of the industry, with a good foundation for the development of new business models. (2) the rapid development of "investment + investment banking". In 2019, the company achieved significant performance growth in investment banking, fixed income self-management and derivatives business, and principal investment is expected to accelerate development with the advantages of capital, research, investment banking and mechanisms.

Capital replenishment promotes the rapid development of investment and market-making business, and the risk of credit trading business is clear. The company's capital strength has greatly improved after raising funds in 21 billion, which promotes the rapid development of the company's investment and market-making business, and the substantial increase in proprietary income has become the main reason for the performance improvement. (1) "FICC power plus self-investment ability" has led to a substantial increase in the return on self-investment. In 2019, the company's self-operating income was 5.3 billion yuan (YoY+46%, Merchants / Galaxy), and the investment scale increased significantly. The parent company's self-equity securities and their derivatives / net capital rose to 29.7% from 20.3% at the beginning of the year, and the non-equity ratio rose to 277% from 172% at the beginning of the year. In terms of investment capacity, according to the annual report, the company's fixed income investment return exceeded the average 11pcts of open-end pure debt funds in 2019, and has made profits for 42 consecutive months by the end of 2019. In terms of new business, the company's over-the-counter derivatives business accounted for 12.3% of the market in 2019, ranking among the top five in the industry of cumulative scale, making significant progress. (2) multiple principal investment pattern to create the characteristics of "investment + investment bank". The company's principal investment business should give full play to the advantages of the two-tier structure of "investment holding group + securities subsidiary", and strengthen the deep coordination of "investment + investment bank". Subsidiary Hongyuan Huizhi actively promotes real estate financial projects, consumer credit projects, accounts receivable projects, urban renewal projects and other businesses; Shenwan Innovation Investment focuses on promoting private equity, private equity fund investment and Science and Technology Innovation Board investment business; Shen Wan Direct Investment focuses on strengthening business cooperation with large groups, listed companies and local governments, and two invested enterprises have been listed on the stock market. We believe that the linkage between investment and investment banking in the future is one of the development trends of comprehensive securities firms, and the company has financial advantages and strong business coordination ability in this regard. (3) clear the risk of credit transaction business. In 2019, the company's net interest income was 3.22 billion yuan (YoY-4%, + 2.7% / Galaxy + 1.4%). By the end of 2019, the balance of the company's financial and financial business was 51.7 billion yuan, with a market share of 5.1%. The stock pledge repurchase balance was 24.5 billion yuan, down 44% from the beginning of the year. Cumulative credit and asset impairment losses amount to 860 million yuan, including 160 million yuan for buying and selling, and 360 million yuan for impairment of creditor's rights and other creditor's rights investments.

Fund investment qualification contributes to the transformation of brokerage business. (1) Fund investment brings new momentum and steady transformation of wealth management. In 2019, the net income of the brokerage business was 3.8 billion yuan (YoY+16%, + 27% / Galaxy + 31%), with an income market share of 4.33%. According to the annual report and the statistics of the Securities Association, the company has 311 business departments, nearly 7.27 million customers (YoY+11%) and 2357 investment advisers (YoY+27%). The company won the fund investment pilot qualification at the beginning of 2020, and we expect the company to give full play to its advantages in terms of the number of business departments, investment numbers and research capabilities to promote the rapid transformation of brokerage business to wealth management under the new model. (2) Investment banks seize policy opportunities. In 2020, the company completed 13 equity financing projects (3 IPO and 10 refinancing projects), 6 approved M & A projects and 45.2 billion yuan underwritten by corporate creditors, realizing a net income of 1.2 billion yuan (YoY+33%, + 25% / Galaxy-10%). The reform of the selected layer is expected to give full play to the company's advantages in the new third board project resources. (3) the income from asset management has achieved positive growth. Affected by the new regulations on asset management, the net income of the company's asset management business in 2019 was 1.29 billion yuan (YoY+8%, investment-13% / Galaxy-15%), and active management business accounted for 86% (YoY+11pcts). At the end of the year, the company participated in subsidiary Wells Fargo Fund and Shen Wanlingxin public offering management scale of 76.2 billion yuan / 339.1 billion yuan respectively.

Investment advice: maintain the buy-An investment rating. We expect the company's EPS to be 0.25,0.28 and 0.32 yuan in 2020-2022, with a 6-month target price of 5.50 yuan and a corresponding valuation of about 1.6xPB.

Risk hint: principal investment risk / new business operation risk / policy change risk