Results in line （net profit fell 163% vs. 159% decline in preannounced net profit）In2016, revenue +219.98% YoY to Rmb1.115bn; net profit -162.92 YoY to -Rmb142mn or -Rmb0.22/sh （weighted）。

Trends to watch

Baoshuo has built a holding company structure and its earnings were hurt by bond market correction in4Q16. 1） Baoshuo included Huachuang Securities into its financial statement last September and sent Rmb7.36bn fundto the latter in December. Baoshuo has transformed into an investment and management platform driven by financialand chemical units, and is expected to have more capital operations. 2） Huashuo Securities contributeSeptember~December earnings in 2016. Fair value of fixed income assets corrected in 4Q16 due to bond marketcorrection （Rmb205mn loss from fair value changes in 4Q16） but fixed income asset unit still post large earnings in thefull year. 3） Sales of pipes and materials remained sluggish and operation slightly improved. Pipes and materialsrespectively generated Rmb192mn/121mn revenue （-6.5%/+7.1%YoY）， with GM +4.4ppt/1.2ppt to 6.8%/0.4%.

Huachuang Securities saw slighter drop in earnings than rivals did. Funds might boost growth. Huachuangpreannounced that 2016 net profit was Rmb408mn （-41% vs. -49.6% industry average）。 WM, investment banking, andstock pledging units recorded positive growth. Collective WM jumped 243% YoY to Rmb4.77bn, stock pledging andrepurchase rose 54% YoY to Rmb1.007bn and bond consignment sales expanded 419% YoY to Rmb18.1bn. Thecompany is to fund margin trading & short selling, pledging and repurchase, proprietary trading and WM businesseswith private placement capitals, and might propel public offering fund and PE businesses in the medium-/long run.

Baoshuo’s dual core units are to benefit from the long-term growth of Beijing, Tianjin and Hebei. 1）Baoshuo’s plastic material plants are located in Baoding, Hebei. 2） The company holds 40% stake in Baoshuo RealEstate Limited. The latter and its subsidiaries Baoshuo Xinding and Baoshuo Jinhong boast 10 land parcels nearXiong’an. We believe that the company will benefit from the development of Xiong’an district.

Earnings forecast

Due to cutting investment return rate, we lower our earnings forecast by 20% from Rmb0.41 to Rmb0.33 pershare for 2017, and by 10% from Rmb0.45 to Rmb0.4 per share for 2018.

Valuation and recommendation

The stock is trading at 1.77x 2017e P/B. Hebei Baoshuo is a beneficiary of the long-term growth in Beijing, Tianjin andHebei, and the market is upbeat on the company. Maintain BUY but raise TP by 5.82% to Rmb18.73 （2.1x 17e P/B）。

Risks: sharp decline in stock and bond markets; supervision uncertainties.