Investment positives

We initiate coverage of Hebei Baoshuo Company (600155) with aBUY rating and TP of Rmb21.39, implying 2.35x 2017e P/B.

Why BUY rating?

New Hope Group acquired financial assets, andHuachuang Securities went public indirectly.Baoshuo is the group’s subsidiary and focuses on thechemicals business. In 2016, it acquired 95.01% ofHuachuang Securities through issuing new shares, andannounced it would raise Rmb7.36bn to replenishHuachuang’s capital, which should be completed soon.

SW China focus a signifcant geographic advantage.Baoshuo will be the only listed broker in Guizhou Province.

Guizhou’s leading operator of non-standard assets.Its investment banking team has a deep understanding ofenterprise risks and financing demands and providescompanies with a basket of financial services.

Flexible management system thanks to its privatemajor shareholder, New Hope Group.

How do we differ from the marketThe rejection of themanagement stock ownership proposal raised broad concernsover the stability of the company’s governance structure, but webelieve the latest board seats ensure the clout of professionalmanagers and hence alleviates these concerns. The market hasunderestimated the growth potential of the company’s uniqueinvestment banking business.

Potential catalysts: Implementation of the fundraising plan;introduction of a management incentive system.

Financials and valuation

EPS is expected to be Rmb0.08, 0.35 and 0.40 in 2016-2018, aCAGR of45.86%(considering fundraising to be completed in2017). We assign the company a 2.35x 2017e target P/B basedon SOTP and relative valuation approaches, implying a TP ofRmb21.39; initiate coverage with a BUY rating.

Risks

Sharp drop in the market; progress of raising supporting fundsdisappoints.