Key investment points: The supply and demand pattern of the industry has improved. In 2016, the LED industry market finally regained a hint of warmth in the Red Sea battle of the past three years: Taiwan LED practitioners experienced market competition with mainland Chinese manufacturers over the past few years, and are increasingly in a dilemma of progress and decline in the context of the gradual maturity of the mainland's industrial chain and progress in supply support. In 2016, many **** manufacturers lost production capacity. This move indirectly caused the market to be in short supply after the second quarter, and market demand and prices for chip products showed a favorable development trend. New production capacity and competition from overseas will still exist in the future, but it is difficult to have an advantage over the mainland industrial chain in terms of price competitiveness. The industrial pattern of the LED chip industry is already relatively stable. Qianzhao is going hand in hand with San'an in the field of red and yellow light, and the strategy of blue and green light closely following the first tier will still be effectively implemented. Opening up resources and saving money and controlling costs are beginning to bear fruit. The company invested a lot of money into the blue-green chip field a few years ago, resulting in high R&D and fixed asset amortization costs. At present, the blue-green chip project has achieved mass production and shipment. The increase in sales revenue and the company's internal cost control excellence have led to a virtuous cycle where product costs and management costs have both declined. Considering that the company's blue-green chips were only gradually fully produced in the fourth quarter of 2016, we expect sales growth in this field to be an important profit growth pole for the company in 2017. The company's annual report shows that the operating profit for 2016 was only 135.98 million yuan (45.58 million of the total profit came from government subsidies). Judging from data from previous years and the company's basic situation, we judge that the positive contribution of open source savings to 2017 performance will continue: under the premise that the company gradually focuses on the chip business and shrinks non-profit projects, 2017 is the year of recovery that truly fully reflects the company's profit situation. Hejun Capital is promoted to the largest shareholder, and both internal and external expansion will benefit. Since the end of December 2016, after Wang Weiyong, the former largest shareholder of the company, reduced his holdings several times, Hejun Zhengde and his co-actor, Suzhou Hezheng, became the company's largest shareholder. Hejun Capital has extensive experience in management improvement, efficiency improvement, and capital management. We judge that the company is expected to use Hejun's capital strength to expand in diversified fields in the future. The integrated response of Hejun and Qianzhao is worth looking forward to. The employee stock ownership plan shows confidence in the company's development. On February 28, the company announced the second phase of the employee stock ownership plan. It initially plans to raise no more than 60 million yuan in total capital and set up a trust plan. Priorities and subordinate levels are set according to a 2:1 ratio. The total capital is no more than 180 million yuan. The lockdown period is 12 months. Among them, executives account for 25% of the total share of the employee stock ownership plan. The company's management changed in 2016, and a lot of fresh blood was added to the company's development management. This employee shareholding plan will effectively enhance the company's cohesion and cover a wide range of areas, while also demonstrating confidence in sharing the company's development with employees. Profit forecast and investment rating: As the leader in red and yellow LED chips in China, buy-rating companies benefit from the recovery of the LED industry and continuous improvement in the profitability of the main business. We expect the company to achieve net profit of 1.52, 1.83, and 222 million yuan in 2017-2019, corresponding to EPS 0.22, 0.26, and 0.32 yuan, corresponding to EPS of 37.1, 30.1, and 25.5 times PE37.1, 30.1, and 25.5 times in 2017-2019. We judge that the company's performance growth in 2017 was more flexible and gave it a purchase rating. Risk warning: 1) The risk of chip prices falling; 2) The company's product sales volume falls short of expectations.