I. Overview of events

The company released its annual report in 2016, with an operating income of 316 million yuan, an increase of 20.94 percent over the same period last year, and a net profit of 38 million yuan, up 16.40 percent over the same period last year, with an EPS of 0.17 yuan. Based on the total share capital of 225 million shares, the company intends to distribute a cash dividend of 1.20 yuan / 10 shares (including tax) to all shareholders, with a cash dividend of 27 million yuan. II. Analysis and judgment

The new projects are progressing smoothly and promoting sustained growth in performance.

In 2016, the company's performance maintained steady growth, achieving a 16.40% year-on-year increase in net profit, and successfully achieving its business target. During the reporting period, the company's two newly purchased A320D flight simulators were installed in Shanghai and Chengdu in June and December respectively and put into training services, with revenue of 7.2642 million yuan and 1.1451 million yuan respectively. At the same time, great progress has been made in the research and development of 3D face collection products, and face recognition authentication products have been tried out in Chengdu East Railway Station, and have been expanded to Chongqing, Guiyang Railway Station and other places, with a profit of 1.3812 million yuan for face recognition products; the company has completed the research and development of virtual reality products, forming three types of virtual reality experience products characterized by panoramic interaction, and the virtual reality experience museum has made a profit of 602300 yuan. We believe that the smooth progress of new projects will boost the company's performance, which is expected to continue to grow with the increase in sales of flight simulation products and the landing of artificial intelligence and virtual reality R & D products.

Benefiting from the civil-military integration strategy, the air traffic control contract reached a new high.

After years of development, the company has mastered the leading technology in the field of traditional air traffic control, and is one of the main systems and service providers of military aviation air traffic control. In 2016, driven by the civil-military integration strategy, the company's newly signed military contracts increased by 84% over the previous year. At the same time, the demand for civil aviation air traffic control is also increasing. During the reporting period, the total amount of new contracts signed in the company's air traffic control related fields exceeded 150 million yuan, an increase of more than 50% over the same period last year. According to Xinhuanet, the overall investment demand for China's air traffic control system is expected to reach 57 billion yuan during the 13th five-year Plan period. We believe that the company will continue to consolidate its competitive position in the air traffic control industry by continuing to increase market investment, take strong performance incentives, and develop new products with technical competitiveness. ATC business is expected to achieve sustained growth.

Foreign investment and strengthening the business layout of urban intelligent systems in February 2016, the central government issued relevant documents requiring the publicity of roads within residential communities and units, solving the problem of traffic network layout, and promoting economical land use, giving rise to the market demand for intelligent security. The new generation of artificial intelligence technology has a great application prospect in urban intelligent system industry. The company has been engaged in the development of new generation artificial intelligence technology for three years, and has taken the lead in intelligent face recognition and vehicle recognition. The company has seized the opportunity to invest in Suzhou Qianshi Tong, plus video big data. We believe that this investment will help the company integrate the technology, products and human resources related to the urban intelligent system business, enhance the company's core competitiveness in this business area, and accelerate the expansion of the urban intelligent system business.

Driven by R & D and innovation, face recognition and VR products gradually hit the ground

The company actively promotes the development of new services represented by face recognition and virtual reality. The principle prototype and application prototype of the company's high-precision 3D full-face camera have been completed, and now it has entered the stage of engineering prototype development; in order to meet the market demand, the development of medium-and high-precision 3D face camera has broken through the key technologies; at the same time, the company plans and designs to complete the portrait recognition application, the first batch of 14 products have been put into development, and are expected to be put into the market in early 2017. In the field of virtual reality, the company develops new cultural VR products for popular science and education through product research and strategic cooperation. Among them, the "Digital Space Hall" has been sold, and the development of space-time aircraft, VR popular science classrooms and other projects is also nearing completion. We believe that the company will continue to increase investment in R & D and innovation and improve the transformation ability of innovative products, and innovative products in the field of portrait identification and VR will be launched one after another this year.

Change the profit model and increase the performance of multi-dimension

The company's original air traffic control and intelligent transportation business is a customized development product + integration + engineering service project model, the company's profit model will change from "project mode" to "project + product + service" mode. High-end training and experience services will become one of the company's main profit models. The service model includes flight simulator training service and air traffic control training service. At present, the company has four D-class flight simulators into training, signed long-term cooperation agreements with Air China, Tibetan Airlines and other airlines, and the income is relatively stable. We believe that the market space for high-end training and experience services is expected to continue to expand, at the same time, the company will continue to promote the R & D and production of new products, and will thicken the company's performance through the profit model of "project + product + service" in the future. Third, profit forecast and investment suggestion estimate that the operating income of the company from 2017 to 2019 is 457 million, 663 million and 938 million respectively, and the EPS is 0.23,0.30,0.40 yuan respectively. With the gradual maturity of the company's artificial intelligence and virtual reality products and the continuous improvement of the new business layout, we are optimistic about the future development of the company, giving the company a range of 140150 times PE in 2017, corresponding to the future stock price of 32.2-34.50 yuan, and giving it a "cautious recommendation" rating for the first time.

IV. Risk hints

1) the risk of market competition; 2) the performance is not up to expectations; 3) the development of the new strategy is not as expected.