2016 earnings in line with expectation

Zhejiang Orient Holdings Co., Ltd announced its 2016 results: revenue was Rmb4.495bn, down 41.6% YoY; net profitattributable to shareholders was Rmb660mn, up 12.3% YoY, or Rmb1.31 per share. ROE of 11.5%.

Trends to watch

Asset restructuring to conclude; “financial holdings + trade” strategy progressing well. 1) The company’splans to acquire 55%/100%/50% of Zhejin Trust/Dadi Futures/SinoKorea Life and raise Rmb1.2bn supporting fundshave been approved by the CSRC. Upon the completion of the restructuring, it will acquire financial licenses for trust,futures and insurance based on its existing businesses (industry finance & investment, finance lease and PEmanagement) to build a holding group engaged in financial holdings and commercial trade. 2) Disposal of textile andproperty arms to focus on core business: the consolidation of Desuno was terminated in June 2016, and the company ispushing forward with its overseas listing. It further downsized its property business by suspending land development.

Steadily improving operation; GM expansion. Affected by the terminated consolidation of Seduno and theshrinking bulk trade business, the company’s revenue declined while its net profit grew 12.3% with gross margin ofdistribution/manufacturing/housing/finance lease up 0.14ppt/0.56ppt/11.30ppt/5.70ppt YoY to 13.3%/ 14.0%/ 24.7%/81.8%. To better deal with risk events, it added Rmb35.37mn provision (Rmb287mn in total) for Sopray’s’ bad debt.

Visible contribution from investment and finance-like businesses; broad asset management modeltaking shape. 1) In 2016, Guojin Leasing generated a net profit of Rmb13.68mn with total assets expanding 15.3%YoY to Rmb1.23bn. In 2016, the company increased its stake in Guojin Leasing from 75% to 86.5% for Rmb160mn. 2)The company conducts direct investment and fund management via Zhejiang Orient Industry Finance Investment,Guomao Orient and Orient Jiafu with funds under management of Rmb4.626bn. In 2016, it recorded gains ofRmb657mn from the disposal of 28.746mn shares of Hikvision and Rmb34.997mn from the sale of Guomao OrientPrivate Placement Phase Two.

Earnings forecast

We raise our earnings forecast by 1% from Rmb1.45 to Rmb1.47 per share for 2017, and by 11% fromRmb1.44 to Rmb1.6 per share for 2018.

Valuation and recommendation

The stock is trading at 17e 2.0x P/B. We maintain our BUY rating and Rmb40.70 target price, implying 45.36% upsideroom from the current price. Risks: Asset restructuring disappoints; policy uncertainty.