Key investment points: On March 16, Yingtang Intelligent Control released the draft of the second phase of the employee stock ownership plan. The maximum amount of capital raised in the employee stock ownership plan is 101.2 million yuan. The participants in the employee stock ownership plan are no more than 120 people, including the company's directors and supervisors, and core and key employees of the company and its subsidiaries. Ping An's view: Continuing employee shareholding shows the company's confidence: Yingtang Intelligent Control completed the first phase of the employee stock ownership plan in June 2016 and purchased 20.81 million shares through the sector-level market, accounting for 1.945% of the company's share capital. The average purchase price was 10.065 yuan, for a total purchase price of 209 million yuan. This time, it is proposed to carry out the second phase of the employee stock ownership plan. The proposed investment scale is 230 million yuan through the pooled trust plan. A shares and B shares will be set up according to 1:1, of which the maximum amount of capital raised from employees is 101.2 million yuan. If the closing price of the company's stock on March 14, 2017 is estimated at 9.77 yuan/share, the number of underlying shares that can be purchased and held by the pooled trust plan is about 23.54 million shares, accounting for about 2.20% of the company's total current share capital. A total of 5 non-independent directors, supervisors and senior managers participated in the current employee stock ownership plan. The total subscription amount was 7.47 million yuan, accounting for 7.38% of the total amount of the employee stock ownership plan. The company introduced employee shareholding one after another, demonstrating the company's confidence in future development and highlighting long-term value. Strategic integration has begun to bear fruit, and the company's performance has grown rapidly: Yingtang Intelligent Control achieved revenue of 4.222 billion yuan in 2016, an increase of 138.35% over the previous year, and net profit attributable to shareholders of the parent company of 210 million yuan, an increase of 435.50% over the previous year. Mainly due to the following points: 1) The company's transformation of distributors saw initial results, and Huashanglong incorporated the merger, expanded and optimized component product lines and customers, and strengthened the layout of customers in industries such as smart chips, new energy vehicles, security, and intelligent rail transit; 2) The company increased its external resource integration efforts and strengthened internal management such as cost control, order management, and organizational optimization. The ratio of management expenses to turnover decreased by 47.76% year on year; 3) The company's equity transfer in the first quarter of 2016 brought about an investment income of about 60 million yuan. The performance forecast for the first quarter of 2017 shows that net profit to mother was about 23 to 28 million yuan, a year-on-year decrease of 66.65%-59.4%. After excluding investment income for the first quarter of '16, the company's operating net profit increased 115.09% to 161.85% year-on-year. Mergers and acquisitions integrate the distribution industry and strengthen industry leadership: After completing the integration of Huashanglong, the company announced in-depth cooperation with Baijian Electronics on May 5, 2016. Baijian Electronics is an important agent and partner for internationally renowned IC brands (Lou's, MicroChip, ISSI, Winbond, Diodes, etc.) in mainland China and Hong Kong. On June 24, 2016, Huashanglong increased the capital of Shenzhen Hiworth, subscribed 60% of Shenzhen Hiworth's shares, and became the controlling shareholder of Shenzhen Hiworth. In 2016, Hiworth's revenue reached more than 1 billion yuan, and will continue to grow rapidly in the next few years. Its products are mainly capacitive touch screen drivers, gravity acceleration, magnetic sensors, gyroscopes, fingerprint sensors, and many other products with broad market prospects. On November 21, 2016, the company established a long-term partnership with Shenzhen SKY Technology Co., Ltd. and SKY Technology (Hong Kong) Co., Ltd. The main products of SKY are conductors and semiconductor products from Sunplus, MPS and Sanken, which are mainly used in home appliances, consumer electronics and industrial manufacturing. On January 21, 2017, the company plans to acquire 48.45% of Co-Chuangtai's shares for HK$48.45 million. United Chuangtai is an authorized distributor of electronic component products with rich agency distribution experience. It is currently the supplier of MTK, the world's second-largest main control chip brand, and SK Hynix, the world's second-largest memory device. The company's continuous integration in the distribution industry has enhanced the company's comprehensive business capabilities, and greatly enhanced the company's industry competitiveness and industry leadership position. Investment strategy: Yingtang Intelligent Control's transformation distributor has seen initial results. The 16-year performance achieved high growth. The acquisition of 48.45% of Joint Chuangtai's shares will strengthen MTK and Hynix chip distribution, and future performance is expected to continue to grow. At the same time, the company actively launched the second phase of the employee stock ownership plan, demonstrating the company's confidence. We expect the company's revenue in 2017-2019 to be 50.99/56.09/6.170 billion yuan, respectively, and net profit to mother will be 2.46/2.66/ 297 million yuan, respectively. The corresponding EPS will be 0.23/0.25/0.28 yuan, and the corresponding PE will be 42/39/35 times, maintaining the “recommended” rating. Risk warning: M&A integration falls short of expectations; industry competition intensifies; agency authority risk.