The annual and quarterly net profit increased rapidly: the company's operating income in 2015 was 360 million yuan, and the net profit returned to its mother was 65.37 million yuan, up 21.27% and 58.07% over the same period last year. In the first quarter of 2016, revenue increased by 91.13% year-on-year to 102 million, while net profit from home increased by 124.78% year-on-year to 9.11 million yuan. The rapid growth of the company's net profit in the two reports is due to the rapid development brought about by the company's endogenous and extension development. In August 2015, Tang Digital began to merge tables, and at the same time, at the level of endogenous growth, the company's long-awaited new public security products began to have large-scale orders. and the company's network content audit and regulatory products in the field of operator customers have also achieved good growth. It is worth mentioning that the quarterly report, despite the reduction in government subsidies, still increased by 124.78% compared with the same period last year, proving the high speed of the development of the company's new public security business.

Gross margin is expected to continue to rise: the company's gross margin has risen steadily since 2013, from 51.14% to 65.27% in 2015. On the one hand, the Tang Dynasty digital gross profit margin of the game company that the company extends mergers and acquisitions is close to 100%, on the other hand, because the company's new products and solutions in the public security field not only have a high gross profit margin, but also have a considerable amount of office-end big data analysis software in the solution, the company's gross profit margin has been gradually increased. As the development of the new field of public security should be faster than that of other businesses, the company's gross profit margin is expected to continue to improve in the next two or three years.

The market of online content, behavioral audit and regulation is developing rapidly: in 2010, the size of China's online content and behavioral audit market was only 640 million yuan, and it is expected to reach 2.18 billion yuan in 2015, with an average annual compound growth rate of 27.22%.

The security of network behavior and content will become particularly prominent in the future: with the continuous growth of Internet applications and the penetration rate of Internet users, as well as the rapid development of cloud computing and "Internet +" of software as a service, both the Internet computer room end and the user broadband access terminal are in high-speed development. The security of network behavior and content will become particularly prominent in the future. with the establishment of the national security strategy in 2015 and the gradual landing of the Anti-Terrorism Law during the 13th five-year Plan period, investment in the field of public security from offline to online and information security is expected to increase year by year, and supervision will be further strengthened. so that the prosperity of the information security sub-industry of Internet information supervision and public opinion supervision remains at a high level.

We are optimistic about the rapid development of the company in 2016 and the next two years: on the one hand, the investment of the public security system in new products and solutions is in the "13th five-year Plan" investment period, and the company is the creator of this digital security market, accounting for 25-40% of the market share. Second, the company plans to vigorously promote the sales of network security equipment in 2016. the company's network content and behavior supervision equipment belong to the same source as the well-known network security equipment, and the hardware index of the company's equipment is leading in the industry. moreover, the company has independent and controllable customer resources in military, public security, medical, financial and other key industries, with an average annual growth rate of 30% in this sub-industry. It is sure to achieve higher-than-expected growth for the company.

Profit forecast: the company's income in 16-18 is expected to be 7.89,10.45 and 1.389 billion yuan, and the EPS in 16-18 is 0.51,0.66 and 0.86 yuan respectively. Corresponding to the closing price on the 19th, the PE in 16-18 is 69.6,53.6,41.1 times respectively, maintaining the "recommended" rating.

Risk hint: the investment intensity of mobile terminal supervision is not as strong as expected.