Take a substantial step forward in mixed ownership reform. At the beginning of April 2014, Hunan Province issued “Opinions on Further Deepening the Reform of State-owned Enterprises”, which proposed further deepening the reform of state-owned enterprises. In order to respond to the call for reform of state-owned enterprises, improve the balance and liability structure, optimize the current layout of the hotel industry, and speed up the construction of the Zhangjiajie project, in November 2015, the company completed a fixed increase to Huaxin Hengyuan — Huaxin Hengyuan 1,653 billion yuan of cash subscription for 300 million shares of the company's common shares at a price of 551 yuan/share. After the fixed increase was completed, Huaxin Hengyuan became the company's second-largest shareholder, holding 29.44% of the shares. Through this non-public stock offering, the company is actively promoting mixed ownership reform, allowing private capital to give full play to market-based operating mechanisms and management methods, and further improving the company's operational efficiency and market competitiveness. Testing the waters of the pension industry based on hotels. With the global economy slowing down and changes in the domestic market, 2015 can be called a turbulent year for China's hotel industry. Hot topics such as the new normal of hotels, mergers and acquisitions, Internet +, strategic alliances, cross-border cooperation, sharing economy, and hotel asset securitization have become hot topics of concern and discussion in the industry. In this development environment, the company is stepping up the pace of change. In November 2015, the company established a wholly-owned subsidiary, Huatian Pension Health Company, with a registered capital of 10 million yuan, making full use of the advantages of the hotel chain to explore the profitable space of existing hotel assets (mainly guest rooms), replicate and promote it in various hotel chains, and gradually increase investment in the pension industry while improving current hotel business performance. Follow the management model of hotel chains and build a chain nursing care industry. Diversified development has led to an increase in performance, and a “gain in weight” rating has been given. The company will continue to stick to hotel services as its main business in the future. Currently, the industry has experienced the harshest cliff-style decline in 30 years, and the competitive pressure from international brands in the middle and high-end hotel market is very strong. On the one hand, the company is experimenting with an asset-light operation model and using entrustment management to obtain profits. On the other hand, it revitalizes the guest room stock, actively explores the effective integration of traditional industries and the Internet by testing the waters of the pension business, and has jointly established a network with the six major hotel group alliances to engage in the hotel public direct sales platform business. As the hotel industry recovers and the company's mechanism becomes more market-based, the company's asset-light operation model continues, the pension industry tests the waters, and the hotel public marketing platform is launched, and the company's performance will grow steadily. For the first time covered, we expect EPS for 2015-2017 to be 0.04, 0.07, and 0.08 yuan/share, corresponding PE of 186, 106, and 93 times. The target price is 13.14 yuan/share, giving an “increase in wealth” rating. Investment Ratings and Valuation The A-share hotel industry listed companies First Travel Hotel, Lingnan Holdings, Jinling Hotel, and Huatian Hotel are all high-end hotel companies with their own properties. PB can reflect the operating conditions of hotel companies. The PB as of March 28, 2016 was 4.41, 5.66, 2.69, and 2.36, respectively. The average PB for the three listed companies other than Huatian Hotel was 4.25, and the company's valuation was lower than the industry average. The average PE in the industry was 73 times higher, and the company lost money in 2014. We believe that from an institutional perspective, Huatian Hotel has completed mixed ownership reform, and the mechanism is more market-based. At the same time, the company sold the Changsha Zidongge Huatian Hotel for 390 million yuan in 2015. The company plans to further sell hotel assets in the future. Currently, the company owns 14 hotels. Based on the calculation of 4.25 times PB, Huatian Hotel's target price is 13.14 yuan/share, and the target market value is 13.4 billion yuan. We recommend “increasing” Huatian Hotel's holdings. The key assumption is that the hotel industry is at a low point in the recession period. Hotel companies are now facing differences between the recovery period and the recession period. We believe that Huatian Hotel is the first listed state-owned hotel company to take a substantial step in mixed system reform, and will achieve better than the industry average in the process of recovering the hotel industry. In 2015, the company sold Zidongge Huatian Hotel and commissioned management to collect management fees. Assuming that in the future, the company will continue to use after-sales entrustment management to shift the company from asset-heavy to asset-light. As this business model changes, the company's amortization and depreciation expenses will be drastically reduced, and the company's profit margin will rise. As the hotel industry recovers, the company's asset-light model will bring more profit. It is different from the public's understanding of the market's views on the company: introducing war investment, making the corporate system more market-based, and strategic investors introducing resources to listed companies. Our view on the company: The company is a stable company with a view to profit. Since its listing, it has only carried out a fixed increase once in 2008. The fixed increase capital raising project has basically been completed, and good profits have been obtained. The introduction of strategic investors this time requires a period of run-in with rules, regulations, and operating methods due to differences in systems, and after the run-in is completed, it will enter a period of rapid development. A catalyst for stock price performance, the launch of the Huitang Pension Project model room received enthusiastic responses; the Beijing Fangzhuangqiao real estate project was sold; and strategic investors introduced resources to listed companies. Core hypothetical risks 1) natural disasters and other emergencies; 2) macroeconomic downturn;