Incidents: On April 7, the company announced its 2016 annual report, achieving operating income of 1.1 billion yuan, a year-on-year increase of 220%; net profit of 142 million yuan, -163%; diluted earnings per share - 0.22 yuan/share, -147% year-on-year. Key investment points: The sharp increase in revenue and the sharp drop in net profit are mainly due to Huacheng Securities since September. The company's fourth quarter revenue was 860 million yuan, and net profit was 134 million yuan. Revenue for the third quarter was $0.7 million, $90 million, and $100 million, respectively, and the corresponding net profit was -10.32 million, -26.98 million, and 29.35 million, respectively. The company included Huacheng Securities in the scope of the merger in September 2016. Affected by fluctuations in the bond market at the end of the year, the fair value of fixed income products declined, and there was a loss in performance. The real estate business was carried out through a shareholding company, Baoshuo Real Estate. The company holds 40% of the shares. Baoshuo Real Estate (Baoding Baoshuo Real Estate Development Co., Ltd.) has two wholly-owned subsidiaries: Baoding Baoshuo Xinding Real Estate Development Co., Ltd. and Baoding Baoshuo Jinhong Real Estate Development Co., Ltd. Baoshuo Real Estate included long-term equity investment with an initial amount of 68.6 million yuan, confirmed investment profit and loss under the equity law - 18.1 million yuan, and a balance of 50.5 million yuan at the end of the period. Baoshuo Real Estate was founded on June 25, 2012 with a registered capital of 5 million yuan. It is a wholly-owned limited liability company established by Baoshuo Co., Ltd. In 2015, 60% of Baoshuo Real Estate's shares were sold to City Fangting. On May 30, 2016, the two major shareholders invested 75 million yuan in Baoshuo Real Estate (40% of Baoshuo's shares, or 30 million). Baoshuo Real Estate and Baoshuo Real Estate's two wholly-owned subsidiaries, Baoshuo Xinding and Baoshuo Jinhong, won ten lots of land at state-owned land use rights auctions held at the Baoding Public Resources Exchange Center Property Exchange Office in Hebei Province on October 31, 2013 and November 11, 2013. Of these, 9 were urban residential land and 1 was for lodging and catering, mainly located on Chaoyang North Street, Lekai North Street, and Shenzhuang Road. As of the end of May 2015, the book value of Baoshuo Real Estate's total assets was $1.36 billion. The construction of Xiong'an New Area is bound to drive the local and surrounding real estate markets. Baoshuo Real Estate's real estate project bears the brunt of revenue. 62% of the company's revenue comes from the securities industry and 30% from the building materials industry. Of the company's revenue of $1,115 million in 2016, $689 million came from the securities industry and $333 million came from the building materials industry. Before Baoshuo absorbed Huacheng Securities, its main products were energy-saving and environmentally friendly pipes and profiles. It includes companies such as Hebei Building Materials (including energy-saving curtain walls, road green construction, Baoshuo Shengdingyuan Trading, Baoshuo Building Materials Manufacturing Co., Ltd.), Baoshuo Profiles (a wholly-owned subsidiary of Baoshuo Co., Ltd.), and Baoshuo Pipes (a wholly-owned subsidiary of Baoshuo Co., Ltd.). The products include PVC pipe fittings, PE water supply and gas pipes, PP-R hot and cold water pipes, and PVC-O pipes with new technology, new materials, energy saving and environmental protection, and a full range of pipe fittings, PVC profiles, high-end “passive house” profiles, plastic steel doors and windows and components. Baoshuo Pipe Company is the vice chairman unit of the Plastic Pipeline Professional Committee of the China Plastics Processing Industry Association. It has a world-class production line for PVC and PE pipes imported from Germany. The product testing center is a national product testing center; Baoshuo Profile Company is the governing unit of the China Plastics Processing Association's Plastic Profile Door and Window Special Committee, and has a complete production line for plastic profiles imported from Germany and Austria. In 2016, pipe production volume was 18,800 tons, sales volume was 21,100 tons; profile production volume was 12,900 tons, sales volume was 13,500 tons. The inventory volume was 1,011 tons and 1,179 tons, respectively, down 70% and 34% from the same period last year. The company's building materials business is mainly distributed in North China. Of the 332 million million dollars in revenue, 200 million comes from North China, accounting for 60%. The construction of Xiong'an New Area is bound to drive the building materials industry. Baoshuo Co., Ltd. will benefit from the construction of a new, large-scale city in Xiong'an by getting the first one month. The valuation of Huacheng Securities was low, and its performance in March improved sharply from month to month. In September 2016, the company completed the issuance of shares to purchase 95.01% of Huachuang Securities's shares, and completed the issuance of shares in December 2016 to raise supporting capital and supplement the capital of Huacheng Securities. At the end of 2016, the company held 97.44% of Huachuang Securities's shares. As of the end of March, Huacheng Securities had net assets of 11.3 billion dollars. According to benchmarks with similar net assets in the same industry, Zhongyuan Securities was 11.5 billion (4.37 times PB, circulation market value: 8.3 billion), Huaan Securities was 121 billion (3.58 times PB, circulation market value 92 billion), Pacific was 126 billion (2.75 times PB, market value in circulation: 30.8 billion), and the average PB value was 357 million. The current market value of Baoshuo shares is only 30 billion dollars, and the market value in circulation is only 7.1 billion. Based on the average PB of 3.57, the company's valuation is 40 billion, with a margin of nearly 30%. From a fundamental point of view, Huacheng Securities had revenue of 350 million yuan in the first quarter and an annualized revenue of 1.4 billion yuan. The net profit for March was 65 million yuan, and the cumulative net profit for the first two months was only 2.9 million yuan, a significant improvement over the previous month. The majority shareholder, New Hope Group, is keen on financial layout, and the company positions itself as a diversified financial holding group. The majority shareholder of the company is New Hope Group, owned by the famous private entrepreneur Liu Yonghao. New Hope Group has ranked among the top 500 Chinese enterprises for 14 consecutive years. The Group's assets amount to more than 75 billion yuan, and it has various financial business layouts such as banks, securities, internet finance, and funds. After the 2016 restructuring of Baoshuo Co., Ltd. (injected into Huachuang Securities, holding 97.44% of the shares), the listed company has become a holding platform with the securities service industry as the core. The company's future development strategy is to strengthen holding platform construction through implicit and extended development, and through active establishment and development or exploration of relevant financial formats and fintech institutions with comprehensive synergistic effects, forming a diversified financial holding group with comprehensive synergy in managing various assets, fintech R&D advantages, and differentiated core competitiveness. Investment advice: On the one hand, the valuation of the securities industry is low, and Huacheng Securities has a comparative advantage over the valuation of the same industry; on the other hand, the company's real estate business and building materials business are all highly compatible with the construction of Xiong'an New Area. Optimistic about the company's development potential, gave Baoshuo shares a “buy” rating. The 2017-2019 EPS is expected to be: 0.49, 0.59, and 0.71, respectively. Target price for six months: 20 yuan/share. Risk warning: stricter regulation, policy risk; risk of performance being affected by stock market fluctuations.