Investment highlights: Incident description: Gree Real Estate announced a fixed increase plan on May 22. It plans to issue shares and pay cash to the Zhuhai State Assets Administration Commission and Urban Construction Group to purchase 100% of its shares in Zhuhai duty-free. At the same time, it is planned to raise no more than 800 million yuan in supporting capital from GM Investment's non-public shares. It is estimated that no more than 186 million shares will be issued, at an issue price of 430 yuan/share. Gree Real Estate and Zhuhai Duty Free belong to the same wholly-owned enterprise of the Zhuhai State Assets Administration Commission. This major asset restructuring is a merger of enterprises under the same control. Zhuhai Duty Free is the second largest operator in China and has duty-free business at the Zhuhai Port. Established in 1983, Zhuhai Duty Free mainly engages in port entry and exit duty-free services in the Zhuhai-Macau region. It is affiliated with many duty-free stores such as Gongbei Port Duty Free Shop, Hong Kong-Zhuhai-Macao Bridge Duty Free Shop, Kyushu Port Duty Free Shop, Tianjin Binhai Airport Inbound Duty Free Shop, etc. In 2019, Zhuhai-Free achieved revenue of 2,669 billion yuan, of which we expect duty-free sales revenue to be about 2.2 billion yuan, which is the largest duty-free operator in China other than China International Travel. Exempt's current duty-free sales are mainly concentrated in the high-margin tobacco and alcohol sector, and the overall gross profit margin is expected to be over 40%. We expect the annual net profit level of the main business of Zhubu to be between 600 and 700 million yuan, and considering the steady development of Macau's tourism industry and the construction of the Greater Bay Area in recent years, Zhubu's business foundation in the Pearl River Delta is stable, and local policy dividends can also be effectively converted into the company's actual profits. The functions of duty-free licenses have been gradually improved, and limited competition has promoted the return of consumption. Since the Ministry of Finance issued a series of policies in 2016, the licensing functions of existing duty-free operators have been gradually improved, and the establishment of an airport bidding mechanism has brought moderate competitive impetus. We expect that the duty-free policy, under the general policy of guiding the return of consumption, will continue to follow the limited competition under the existing licensing system, drive an increase in the total volume of duty-free sales at the airport and the city, and benefit the long-term development of the existing four enterprises. Gree Real Estate's main business is spread throughout the country, and the operation is steady. In 2019, Gree Real Estate achieved sales revenue of 4.193 billion yuan, and there was steady growth in real estate and contract construction businesses. At the same time, the company actively explored various lines such as marine and port business, modern services, and finance. At this stage, the company is selling a total of 6 real estate development projects, distributed in Zhuhai, Shanghai and Chongqing. Subsequent completion and sale of projects in Shanghai and Chongqing is expected to bring stable profits to the company. Investment suggestion: Gree Real Estate's main real estate business uses RNAV for a valuation of 15.2 billion yuan. The current market value is discounted by 28% compared to this. Regardless of this acquisition and issuance of additional shares, net profit is expected to be 6.17/6.83/783 million yuan in 2020-2022, corresponding to EPS of 0.30/0.33/0.38 yuan, respectively. Considering the impact of the epidemic, we expect Zhuhai Duty Free to achieve duty-free sales revenue of 782/23.26/2,528 million yuan respectively in 2020-2022. It is estimated that the main duty-free business in Zhuhai will have a stable profit of between 600 million yuan and 700 million yuan. It is estimated that the fair market value of the duty-free portion is between 12 and 14 billion yuan. After the acquisition is completed, the company's overall reasonable market value is expected to be between 211-23.1 billion yuan. Compared with the current market value of 10.9 billion yuan, there is a lot of room for improvement. If comprehensive consideration is given to issuing shares according to the plan, we expect the company's reasonable market capitalization range to correspond to the target price of 5.58-6.72 yuan/share. Considering that the two enterprises merged this time are actually controlled by the State Assets Administration Commission of Zhuhai, we believe that there is a high probability that the plan can be achieved. It will be covered for the first time, and we will give it an “increase in holdings” rating. Risk warning: 1) The company is greatly affected by fluctuations in a single local policy, and the Zhuhai market is strongly correlated with the company's short-term sales situation. 2) The company's leverage ratio is high, and short-term debt is under some pressure. 3) There is a possibility that this asset restructuring will fail.