Investment positivesWe initiate our coverage of Guolian Securities Co., Ltd. (Guolian) (601456) with an OUTPERFORM rating and a TP of Rmb13.80 (2.3x 2022e P/B). We initiate our coverage of Guolian Securities Co., Ltd. (Guolian) (1456.HK) with an OUTPERFORM rating and a TP of HK$5.40 (0.8x 2022e P/B)Why an OUTPERFORM rating?A+H listed securities firm with an experienced management team, good corporate governance, and advanced institutional mechanism. The firm mainly targets the southern Jiangsu market. It has a state-owned enterprise (SOE) background and a market-oriented system. We believe its employee stock ownership program (ESOP) makes it more appealing to professionals and more competitive in the market. Most of its executives have extensive experience in leading securities firms. We believe Guolian Securities stands out due to its experienced management team, high-quality corporate governance, and advanced institutional mechanism. We also believe the firm’s capital replenishment will ensure its long-term growth. In 2017-2021, Guolian’s total asset ranking in the industry rose from 60 to 35, and its earnings increased from Rmb361mn to Rmb889mn, a CAGR of 25%. In 1Q22, its earnings grew 20% YoY (vs. -46% YoY for listed securities firms on average) despite market fluctuations.Guolian follows sector trends; we expect it to gain market share by leveraging its professional services. The securities industry is shifting from a traditional model centered on the channel and proprietary business to a client-centered comprehensive service model. The comprehensive investment banking, financial market, and wealth management (WM) businesses are being restructured. With the upgrading and restructuring of the industry, the market’s competitive landscape is improving, and the concentration of revenue and profit is increasing with fluctuations. From 2014 to 2021, the top-5 players’ revenue contribution rose 1.9ppt to 31.7%, and that of the top 10 grew 4.8ppt to 51.6%. While leading comprehensive securities firms are becoming stronger, we expect some small and medium-sized securities firms to build their competitive advantages in market segments by leveraging their well-established business presence and synergy mechanism. Guolian follows sector trends with a leading presence in its three main business fields. We expect it to leverage its professional services and gain a larger market share.Clear strategic presence, advanced business structure, and business synergies create growth potential. Guolian’s WM business has a clear strategic positioning with an improving business structure. Specifically, its WM business mainly targets small and medium-sized financial institutions and high-net-worth individual clients. The clear strategic positioning, coupled with geographical advantage, has supported rapid growth of the business segment. The firm positions its asset management business as the product center for WM and the performance of asset-backed securities (ABS) has been strong. The financial market business is client-centered. Sell-side fixed income products and OTC derivatives are developing rapidly. Guolian’s investment banking business is transitioning from a traditional model to a transaction-based one, and the firm is generating synergies between its investment and investment banking businesses. We believe Guolian has a leading and balanced business structure. Business synergies add to its competitiveness, and capital replenishment and M&A will unlock its growth potential, in our view.How do we differ from the market? We believe Guolian Securities is a dark horse in the industry. It has sound enterprise governance, well-established business presence, and stronger growth potential. We are upbeat on its fundamentals and upside potential from a trading perspective.Potential catalysts: Increased market risk appetite due to loose liquidity and pro-growth policies; progress in capital market reforms; stronger-than-expected recovery in Guolian’s return-on-equity (ROE).Financials and valuationOur EPS forecast is Rmb0.36 for 2022 and Rmb0.47 for 2023, a CAGR of 23%. Guolian-A is trading at 1.8x 2022e P/B, and Guolian-H is trading at 0.6x 2022e P/B. We adopt a SOTP-based valuation method and assign a target market cap of Rmb39.1bn to Guolian-A and HK$15.4bn to Guolian-H, implying TP of Rmb13.8 (2.3x 2022e P/B, offering 27% upside) for Guolian-A and HK$5.4 (0.8x 2022e P/B, offering 27% upside) for Guolian-H. We initiate coverage on both A and H shares with OUTPERFORM ratings.RisksMarket fluctuations; uncertainty in regulatory policies; disappointing business transformation.