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Highsun announced plans to establish Huacheng Life Insurance; it will contribute Rmb200mn of the newcompany's Rmb1bn registered capital, giving it a ——20% stake.

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Another significant member joins Highsun's financial service platform as it consolidates financialresources. After entering banking – through its stake in Guangdong Heyuan Rural Commercial Bank and settingup a private bank （Huacheng Bank） – factoring, finance leasing, petty loans （via acquisition of Highsun Small-loanand establishing internet-based microlending company） and acquiring third party payment license （via acquiringGuangdong Cenway E-commerce and 30Pay.net） Highsun is now creating a full license financial service platformand more M&A can be expected.

Huacheng Life Insurance has promising prospects and can form synergy with Highsun's businessesto explore new profit drivers and boost Highsun's comprehensive competitiveness.

Huacheng Life Insurance to benefit from development of insurance industry: the centralgovernment is promoting financial reform and innovation in the financial sector; and the State Council hasissued suggestions on accelerating the development of modern insurance services. Against this backdrop, theinsurance sector is to embrace a new wave of development opportunities; as a possible beneficiary, HuachengLife Insurance has promising growth prospects.

Creating a new profit driver: the establishment of Huacheng Life Insurance will not only reinforceHighsun's strength in the financial sector but also form a synergy with its commerce and culture &entertainment businesses to broaden its business range, nurture new profit drivers and boost its L-T growth.

Successful issuance of CBs to drive up share price. The conversion price of its CBs is Rmb5.26/sh.

Management is motivated to drive the stock conversion. Before the final conversion date, if the closing priceis >130% of the conversion price in 15 of any 30 continuous trading days, it will indirectly trigger the conversionclause, i.e. Rmb6.84/sh.

Valuation and recommendation

As the company's plans still need to get the green light from a number of government agencies, wemaintain our earnings forecasts and BUY rating for now. Highsun's ecosystem （covering commerce, culture &entertainment, finance and AFV） has started to bear fruit. Progress in M&A and business model innovation after the CBissuance merits attention. Maintain TP at Rmb6.7, implying 51x 2017e P/E. Risks: commercial projectdisappoints; vitality in real estate settlements; cross-border M&A risks.