Event: the company released the 2016 China report. In the first half of 2016, the company achieved an operating income of 583 million yuan, an increase of 89.32% over the same period last year, a total profit of 75.4782 million yuan, an increase of 215.74% over the same period last year, and a net profit of 63.3438 million yuan belonging to the owner of the parent company, an increase of 205.5% over the same period last year.

During the reporting period, all the business lines of the company operated well, the business of radio frequency devices and new energy vehicle structures developed well, and various mergers and acquisitions advanced in an orderly manner. According to the quarterly data, the company's quarterly operating income was 395 million yuan, an increase of 94.95% over the same period last year; the total profit realized was 66.716 million yuan, an increase of 203.17% over the same period last year; and the net profit belonging to the owner of the parent company was 67.1828 million yuan, up 196.8% from the same period last year. During the reporting period, the company's business operation is good: 1) during the reporting period, the company used in smart home infrared LED, TV backlight to achieve better growth. While deeply ploughing the traditional fields such as TV backlight, lighting source and display indication, the company actively arranges and develops plant lighting, automobile lighting and infrared LED product lines. We are optimistic about the continuous optimization of the company's product structure and the company's new profit growth points; 2) during the reporting period, the company's key customer marketing continued to maintain good progress. The company maintains stable cooperation with existing major customers Konka Group and Skyworth in the TV backlight, and Sanxiong Aurora Mobile Limited in the lighting source; infrared LED maintains volume growth in the intelligent robot market in Corworth and iRobot (a world-renowned robot brand); successfully enters Letv TV backlight supplier system; 3) during the reporting period, the company's LED lighting business develops well. In the domestic LED lighting market, the company provides contract energy management (EMC) energy-saving renovation services for Wangfujing, Chongqing department stores, Shibao department stores and other super stores in Beijing, Chongqing and Shenzhen, and warehousing lighting energy-saving transformation services for many outlets in Shenzhen Shun Feng Express. The company completed the pre-inspection and acceptance of the newly installed subway lighting for the first subway line R2 in Dongguan and the largest subway transfer hub in Asia, Shenzhen Chegongmiao Station. 4) during the reporting period, the company completed the acquisition of Dingsheng Yixuan and hundreds of millions of Wireless, transforming the emerging Internet business. The goal of the company is to gradually realize the whole industry chain of Internet advertising media. we are optimistic about the expansion space of the company in this field, and that the above extension expansion will bring broader profit growth space for the company.

During the reporting period, the comprehensive profit margin remained at a high level and the company's profitability was good. In the first half of 2016, the company's comprehensive gross profit margin was 29.73% (down 0.58 percentage points from the same period last year), of which the company's comprehensive gross profit margin in the second quarter was 29.61%. We believe that the company as a whole has maintained a high level of profit, and we are optimistic that as the company develops plant lighting, automotive lighting, infrared LED product lines and the company's expansion in the Internet field. We expect that as the company's product structure will continue to be optimized, the company's comprehensive profit margin is expected to continue to rise in the long run.

During the period of the company, the cost is well controlled, and the R & D expenditure is kept at a reasonable level. During the reporting period, the company's period expense rate was 16.6% (down 3.5% from the same period last year), of which the cumulative management expense rate at the beginning of the year was 10.15% (down 2.83% from the same period last year); the company's single-quarter expense rate was 13.02%, down 4.54% from the same period last year. During the reporting period, the company's R & D expenses increased, mainly due to the inclusion of Optoelectronics in the consolidated statements. We believe that the company's R & D expenditure is in a reasonable scale and the cost is well controlled during the period.

We give the company an "overweight" investment rating for the first time. We estimate that the company's operating income for 2016, 2017 and 2018 will be 1.577 billion yuan, 2.065 billion yuan and 2.635 billion yuan respectively; the net profit attributable to the parent company of the listed company will be 147 million yuan, 188 million yuan and 252 million yuan respectively; earnings per share will be 0.18,0.23 yuan and 0.31 yuan respectively; and the corresponding dynamic PE will be 86.5,67.7 times and 50.23 times, respectively. We are optimistic about the effect of the company's extension growth and extension expansion. For the first time, the company was given an investment rating of "overweight".

Risk hint: downstream demand fluctuates more than expected.