Homing net profit-8.5%, in line with expectations

Zhejiang Oriental announced 1H17 results: operating income was 3.612 billion yuan, up 37.7% over the same period last year; net profit attributed to the parent company was 383 million yuan, down 2.2% from the same period last year, corresponding to 0.58 yuan per share, with ROAE 4.59% during the period.

Trend of development

The reorganization of assets has been successfully completed, and the embryonic form of "financial control" has emerged. In the first half of the year, the company completed the acquisition of Zhejiang Gold Trust, Land Futures and China and Korea Life Insurance and the capital increase of Zhejiang Gold Trust. With the gradual divestiture of unrelated business, the company structure was gradually optimized. The financial control and trading platform integrating trust, financial leasing, futures, direct investment, insurance and wealth management has basically taken shape.

The trust is expanding rapidly and is expected to release profits in the future. The trust assets of 1H17 Zhejiang Gold reached 131.363 billion yuan, a significant increase compared with 39.068 billion yuan in 16 years, with an income of 118 million yuan (194 million yuan for the whole of 16 years), and the corresponding rate of return dropped to 0.24% from 0.51% in 16 years. We judge that the scale of trust is in a period of accelerated expansion, and the profit level is lower than the industry average. It is expected to enter a period of stable development in the future, and the performance will be gradually released.

The supervision becomes stricter and the value of the license plate increases. The company has many licenses, such as life insurance, leasing, futures, trust and so on. Under the trend of stricter financial supervision, the value of the license will further rise.

Guojin leased revenue + 8%YoY to 30.51 million yuan and net profit + 41%YoY to 9.37 million yuan in the first half, while China and South Korea Life continued to lose 40.06 million yuan in the first half of the year in the case of premium income-52%YoY.

The profit space of the main business has shrunk seriously and is expected to accelerate the divestiture. The company's operating income in the first half of the year + 18%YoY to 3.421 billion yuan, but the gross profit margin fell from 18% to 4%, and the trade portion contributed only 17.72 million yuan in net profit. The only bright spot is the 60 per cent holding of ITC Oriental Real Estate, which turned its net profit back to 145 million on the basis of its overall income-32%YoY, contributing to the company's main source of profit in addition to investment income. We believe that the improvement in corporate finance will accelerate the divestiture of the trade sector.

Profit forecast

We cut our earnings per share forecasts for 2017 and 2018 by 21% and 15% from Rmb1.47 and Rmb1.60 to Rmb1.16 and Rmb1.37, respectively.

Valuation and suggestion

At present, the company's share price corresponds to 17e 22.2x Pmax E 2.0x Pmax B. We maintain our recommended rating and target price of 40.70 yuan, which is 57.69% upside from the current share price.

Risk.

The change of macro environment is uncertain.