Investment positives

We initiate coverage with a HOLD rating and a target price ofRmb33.32, based on a SOTP valuation.

Why a HOLD rating

Relying on Anhui Co-op's background to establish“payment + lending” platform. In 2018, payment &lending are expected to account for 62% & 38% of revenueand 56% & 44% of net profit.

Payment: Channel sinking to expand merchant base,providing credit service to explore merchant value.

Offline POS bank card acquiring entering a silver era（2016——2020e revenue CAGR——19%）。 Declining fee rates andmobile revolution accelerating industry reshuffle.

Lending: unique advantage in client acquisition,solid risk control strategy, good relations withbanks. The company can fully benefit from the dividend ofmicro credit and rural finance.

Synergy in three aspects: channel （urban + rural），business （payment + lending） and risk control （POStransaction data + offline networks）。

How do we differ from the marketRelatively prudenton the market space for offline POS bank card acquisitions;synergy from “payment + lending” not yet observed.

Potential catalysts: CSRC approval of asset restructuring;expansion of leasing business in other regions; completion ofshare sales by shareholders.

Financials and valuation

EPS is expected to be Rmb0.74/0.83/0.98 in 2016/17/18e, aCAGR of15%. Based on diluted total equity of 396mn, the2016/17/18e EPS should be Rmb0.45/0.82/1.42 （CAGR: 78%）。

Risks

Failure of asset restructuring; increasing competition in 3rd-partypayment.