Event: Zhejiang Oriental released the 2016 annual report, the company achieved operating income of 4.49 billion yuan (YoY-41%), net profit of 660 million yuan (YoY+12%), total assets of 9 billion yuan (YoY-0.4%), and net assets of shareholders of listed companies reached 6.4 billion yuan (YoY+24%). The decline in revenue in 2016 is mainly due to the fact that Ningbo Shidanu Group Co., Ltd., the former subsidiary of the company, is no longer included in the merger since June 2016, and the company has reduced the scale of some commodity trade in order to control risks.

The restructuring of the company is progressing smoothly and the financial control license is scarce. Zhejiang Oriental announced in 2016 that it plans to increase the purchase of 55 per cent of Zhejiang Gold Trust, 87 per cent of Dadi Futures, 50 per cent of China and South Korea Life Insurance and 13 per cent of Dadi Futures held by Zhejiang Zhongda Group, and raise 1.2 billion yuan in matching funds. In December 2016, the company restructuring was examined and approved unconditionally by the merger and acquisition reorganization Committee of the Securities Regulatory Commission. At present, the registration procedures for the change of industrial and commercial equity of Zhejiang Gold Trust and Dadi Futures have been completed, and the equity change application of China and South Korea Life Insurance is being examined and approved by the China Insurance Regulatory Commission. The restructuring of the company is progressing smoothly. After the completion of additional asset purchase in the future, the company will obtain three financial licenses of trust, futures and insurance on the basis of the original industrial and financial investment, financial leasing and private equity fund management business, and the value of the financial control license is scarce. In the future, Zhejiang Dongfang will build a "Financial Control + Commerce" holding Group to realize the coordinated development of Financial Control and Commerce.

The main results are as follows: (1) the active management ability of Zhejiang gold trust is improved. After the completion of the fixed increase, the company will hold 55% of the shares of Zhejiang Gold Trust. In 2016, Zhejiang Gold Trust achieved a trust income of 160 million yuan, steadily rising. By the end of 2016, the trust assets of Zhejiang Gold Trust had reached 49 billion yuan (YoY+128%). The trust funds were mainly invested in infrastructure construction, real estate, industrial and commercial enterprises and other areas, of which infrastructure construction trust assets were 5 billion yuan (accounting for 10%), with income exceeding 60 million yuan (38%) and real estate trust assets of 5.7 billion yuan (11%, 31%). The scale of trust assets of industrial and commercial enterprises is 14.2 billion yuan (accounting for 29% and 23% of income). At the same time, the active management capacity of Zhejiang Gold Trust has improved, and the proportion of pooled assets increased by about 8 percentage points in 2016. As a result of the optimization of the business structure, the return rate of Zhejiang gold trust is higher than that of the industry (the net return rate of trust in 2015 was 0.74%, compared with 0.65% in the same period). According to the China Trust Association, the trust industry was entrusted with management of 20 trillion yuan (YoY+24%) in 2016, with a net profit of 77.1 billion yuan (YoY+2.8%). In 2017, the trust industry will continue to benefit from the new bank financial management policies. Zhejiang Gold Trust will steadily increase its trust size in 2017, and the trust return rate will rise steadily.

(2) the optimization of the business structure of China and Korea Life. After the completion of the fixed increase, the company will hold a 50% stake in China and South Korea Life. The premium income of China and South Korea Life Insurance has been growing continuously since its establishment three years ago. Although China and South Korea Life Insurance is still in a state of loss, it is basically in line with the profit law of newly established life insurance companies. At present, insurance licenses are still scarce. On the debt side, the insurance business income of China and South Korea Life Insurance products reached 339 million yuan in the first three quarters of 2016 (up from 332 million yuan for the whole of 2015), the company's channel structure is sound, and the proportion of individual insurance business reaches 98% (compared with 2015 + 1pc), maintaining a high level. On the investment side, China and South Korea Life's investment assets increased from 449 million yuan at the end of 2013 to 477 million yuan at the end of 2015, with a compound annual growth rate of 3 per cent. It is expected that the more optimized channel structure in the future will lead to the growth of the company's value, and the company's investment income will increase steadily as the capital market stabilizes.

(3) the performance of Dadi futures has increased steadily. After the completion of the fixed increase, the company will hold a 100% stake in Dadi Futures. The net profit of Dadi Futures reached 29.43 million yuan in the first three quarters of 2016, which is basically the same as that of 2015. The transaction fee of one of the company's main sources of income mainly depends on the agency trading situation and the level of formalities rates. The comprehensive formalities rate level of Dadi Futures reached 0.378 (YoY+0.231) in 2016, and Dadi Futures Trading volume accounted for 0.6% of the total trading volume of the futures market (YoY+0.2pc), and the company's performance increased steadily.

Increase the capital of financial assets and replenish capital. In the Zhejiang Oriental reorganization plan, in addition to purchasing financial assets through fixed increases, it also raised 1.2 billion yuan in matching funds to increase capital in Zhejiang Gold Trust and China and South Korea Life Insurance, raising matching funds based on the implementation of issuing shares to purchase assets. however, the success of raising matching funds has no impact on the implementation of issuing shares to purchase assets. In terms of ① Zhejiang Gold Trust, Zhejiang Oriental plans to increase its capital to China and South Korea Life Insurance by 950 million yuan to support the development of its inherent business and trust business, enhance its capital strength, and narrow the gap with the industry average. according to the performance commitment, the net profit of Zhejiang Gold Trust from 2017 to 2018 is expected to be no less than 57.05 million yuan and 65.39 million yuan respectively. For ② China and South Korea Life, Zhejiang Oriental plans to increase its capital by 250 million yuan to supplement China and South Korea Life, increase its solvency adequacy ratio (107 per cent at the end of 2016) and promote future business development.

The company's investment and financial business has developed steadily. Corporate financial business is mainly divided into three parts, financial leasing, direct investment and fund management. Among them, the financial leasing business is carried out by the holding subsidiary Guojin Leasing (86.52%, with capital of US $50 million after capital increase). The direct investment is mainly based on the company itself and the wholly-owned subsidiary Dongfang Industrial Finance as the investment platform. Fund management is mainly carried out through Oriental Industry and Finance, International Trade Oriental (49%) and Oriental Jiafu (49%). The company's investment and financial business has developed well, which has created stable profits for the company. in addition, ITC Oriental is involved in quantum communications (1) Oriental industry and finance and ITC Oriental are in good condition. In 2016, Oriental Industrial Finance and International Trade Oriental respectively achieved the withdrawal of three funds, and all achieved positive benefits. at present, the total number of ITC Oriental Capital and Oriental Jiafu Management Fund has reached 19, with a total size of 4.6 billion yuan, and the income situation is relatively good.

(2) ITC Orient is involved in quantum communication. ITC Oriental's Zhaofu Fund invested 40 million yuan in China Quantum and 100 million yuan in HKUST International Shield, of which HKUST International Shield made a net profit of more than 50 million yuan in 2015. The popularity of quantum communication has increased under the 13th five-year Plan, and it is estimated that the market space of quantum communication in the field of information security will exceed 30 billion in 2018.

(3) Huaan Securities listed to optimize the asset structure. Huaan Securities, which was directly invested by the company in 2016 (1.99%), was listed on the Shanghai Stock Exchange. The successful listing of Huaan Securities has improved the company's asset quality accordingly. In 2016, Huaan Securities achieved a net profit of 600 million yuan, and the company's brokerage business was deeply cultivated in Anhui Province. In 2016, the net income of brokerage fees and commissions reached 1 billion yuan (accounting for 58%). At the same time, the company's financial advisers contributed performance, underwriting sponsors have great potential, self-management performance is expected to be stable, and asset management business focuses on active asset management. For specific performance comments, please refer to our previous Huaan Securities Annual report on "Business ploughing Anhui, layout of pluralistic Finance".

Develop e-commerce platform for commodity circulation business.

(1) expand cross-border e-commerce in commodity circulation business. In 2016, the company realized commodity circulation income of 3.1 billion yuan (YoY-40%, accounted for 69%). The company developed an e-commerce platform in the commerce sector. Oriental Hainer e-commerce platform was established in 2016 to promote the transformation of foreign trade, expanding Amazon.Com Inc warehouses in Europe and its own overseas warehouses in the United States. in 2016, the company's export sector (12 enterprises) profits reached 94.9 million yuan, which remained basically stable. It is expected that in the future, the company will further expand the cross-border e-commerce business and achieve the transformation and upgrading of the business model.

(2) the development of other traditional businesses slows down. Affected by the macroeconomic downturn and the contraction of some of the company's traditional business, the development of the company's traditional business, such as real estate and industrial manufacturing, slowed down in 2016. Among them, the company's real estate sector accelerated "inventory removal", achieving operating income of 480 million yuan (YoY-15%, accounted for 10%), industrial manufacturing sector realized operating income of 800 million yuan (YoY-54%, accounted for 17%), freight forwarders and other businesses achieved operating income of 17 million yuan (YoY-27%, accounted for 0.4%). The focus of the company's business is shifting from real estate and textiles to financial control plus commerce.

Strong shareholder background promotes the integration of industry and finance. The controlling shareholder of the company is ITC Group. After the completion of the fixed increase, ITC's shareholding in the company will be increased from 44.23% to 48.35%, while Zhejiang SASAC actually controls Zhejiang Dongfang through wholly-owned holding ITC. With total assets of 57.1 billion yuan (YoY+19%) in 2015, while Zhejiang SASAC has a strong background, Zhejiang Oriental is expected to further benefit from the resource injection of Zhejiang SASAC and ITC, realizing the accelerated development of financial control platform and traditional business and promoting the integration of industry and finance.

Investment advice: buy-An investment rating, 6-month target price of 36 yuan. We estimate that the EPS of the company from 2017 to 2019 is 1.13,1.30 and 1.46 yuan respectively.

Risk tips: macro risk, business integration lower than expected risk, market risk.