1. Event Overview Recently, Lianjian Optoelectronics released its 2016 annual report, performance forecast for the 1st quarter of '17, and profit distribution plan: 1) 2016 achieved revenue of 2,803 billion yuan, a year-on-year increase of 84.12%, and net profit attributable to shareholders of listed companies of 403 million yuan, a year-on-year increase of 80.16%, deducted non-net profit of 381 million yuan, a year-on-year increase of 82.12%, basic earnings per share of 0.70 yuan, and net profit per share of 0.66 yuan; 2) Expected net profit fluctuation range for the first quarter of '17 was 69 million yuan~ 80 million yuan, an increase of 21.37% to 40.72% over the previous year; 3) It is planned to distribute cash dividends of 2 yuan (tax included) for every 10 shares. 2. Analysis and judgment. The 2016 performance was in line with expectations, and the three major business synergies were evident. Endogen+extension became the driving force for performance 1. The annual report performance was in line with expectations. (1) In its 2016 performance forecast, the company stated that it is expected that the net profit attributable to shareholders of listed companies in 2016 will change by 370 million yuan to 430 million yuan, with a year-on-year change of 65.42% to 92.25%. The results of this annual report are above the median value of the range. (2) The company's consolidated gross margin was 36.10%, down 2.28 percentage points from the previous year. (3) The three main businesses, digital equipment/digital outdoor/digital marketing, had a year-on-year growth rate of 19.72%/56.98%/294.54%; revenue share was 33.36%/24.53%/42.11%; gross margin was 35.91%/47.17%/29.83%, and gross margin increased 2.74 percentage points, an increase of 13.94 percentage points, a decrease of 30.59 percentage points. (4) The fee rate for the period was 18.44%, down 1.63 percentage points from the previous year. The sales expense ratio, management expense ratio, and financial expense ratio were 9.88%/7.91%/0.65%, respectively, a decrease of 1.75 percentage points, a decrease of 1.48 percentage points, and an increase of 1.60 percentage points. 2. The main reason for the rapid increase in performance in 2016 is that the sales scale of the three major businesses continued to expand, and the synergy between endogenous and epitaxial is obvious. The Q1 earnings forecast for '17 benefited from continued growth in endogenesis and extension, further improving profitability. The company achieved revenue of 930 million yuan in Q4 of 2016, up 114.26% year on year and 6.12% month on month. Net profit was 144 million yuan, up 128.69% year on year and 25.19% month on month. The company's performance growth has mainly benefited from the formation of an integrated marketing service group centered on digital display equipment, brand PR services, and outdoor media networks. The company's marketing service capabilities have improved, sales scale has continued to expand, and profitability has been further enhanced. The integration and synergy of the three major business advantages has been demonstrated. 3. We believe that with the formation of an intelligent integrated marketing service group, the company will establish a powerful big data analysis and processing platform through “self-development+extension” and achieve accurate advertising and marketing, and build an intelligent integrated marketing service group driven by big data+artificial intelligence. Performance is expected to continue to rise. The digital marketing service business was further optimized and integrated, and integrated marketing service capabilities reached a new level1. During the reporting period, the digital marketing sector was further integrated and optimized, achieving revenue of 1.18 billion yuan, a year-on-year increase of 294.39%, and net profit of 147 million yuan, a year-on-year increase of 198.58%. Among them, Youtuo PR specializes in brand PR marketing, Litang marketing covers interactive event marketing, and Lima Network and Precise Audience Focus Internet Marketing. The company can provide customers with comprehensive marketing solutions integrating the three. The company has accumulated high-quality customers in various industries such as Mengniu, Ping An of China, Jinli Mobile, Vanke, Jingdong Mall, Youku Tudou, Baidu glutinous rice, etc., covering the fields of FMCG, finance, IT, communications, energy, real estate, Internet, etc.; Lima Network has formed standardized Internet advertising solutions, forming a virtuous business cycle, and has accumulated services to more than 30,000 small and medium-sized customers. 2. We believe that the digital marketing service business has reached a new level and has competitive advantages such as rich marketing service industry experience, classic cases, top teams and strong business systems, and will continue to contribute to the company's performance. An outdoor media resource network covering the whole country was formed, and the service capacity of the information system was upgraded 1. During the reporting period, the digital outdoor sector achieved revenue of 688 million yuan, an increase of 50.96% over the previous year, and net profit of 187 million yuan, an increase of 61.67% over the previous year. The company has strengthened the country's ability to integrate outdoor advertising resources through endogen+extension, and has further expanded its own media resource network to Chengdu, Nanjing, Taiyuan, Shanghai, Xi'an and other places, establishing huge traffic entrances and channel entrances for integrated marketing service business. The company has established a nationwide digital outdoor media network through the acquisition of subsidiaries such as Timeshare Media, Ocean Media, Shanxi Huahan, Linked Culture, Xi'an Luyi, Shanghai Chengguang, Tibet PoTV, and Fengde Boxin, etc., with a total media area of about 250,000 square meters. 2. The company has also established a complete and powerful e-TSM outdoor media resource management system. The system connects 12,888 merchants, covers 342 domestic cities, has 55156 advertising resources, and has a total media resource area of 17.436 million square meters. The system also integrates a large number of outdoor media resources across the country. The data is multi-dimensional and comprehensive, and can transform the traditional timing, fixed, single-point, and isolated model into modern outdoor media distribution in a time-sharing, mobile, multi-point, and networked style, providing customers with a one-stop outdoor advertising media solution. 3. We believe that by combining digital marketing service capabilities and digital display equipment, the company will give full play to the advantages of a network of outdoor media resources covering the whole country to provide customers with one-stop advertising and marketing solutions. Digital display equipment continues to lead the industry, and the acquisition of Artixium accelerates the pace of overseas expansion1. During the reporting period, digital display equipment achieved revenue of 935 million yuan, an increase of 18.78% over the previous year, and net profit of 130 million yuan, an increase of 79.56% over the previous year. The company invests in Artixium to enter the European and American sports and culture markets, acquire innovative product design capabilities such as stadium screens, enrich customer resources, and European and American market channels, and promote the company's international layout. The small pitch LED screens provided by the company are widely used in military, meteorology, airports, public security, transportation, security and other fields. 2. We believe that the company's LED display technology continues to lead the industry, and will continue to integrate new technology resources in the future to benefit from the boom in small-pitch LEDs, and its performance will continue to grow rapidly. The equity incentive+partner system injects momentum into long-term development, and share repurchases highlight confidence in long-term development1. At the beginning of 2016, the company implemented the first stock options and restricted stock incentive plans, and granted 9.165 million stock options and 975,000 restricted shares to incentive recipients. In January 2017, the company plans to use its own capital of no more than 240 million yuan to buy back the company's shares at a price of no more than 25 yuan/share. The repurchase of shares will be used for employee incentives. In the future, the company will introduce core talents and establish a business partner mechanism. 2. We believe that introducing cutting-edge talents, establishing a partnership system and equity incentive mechanism will lay a good human resources foundation for the company's long-term development. The repurchase of shares shows that the company's management is confident in long-term development. 3. Profit forecasting and investment suggestions take into account the company's equity incentives for management in 2016. The equity incentive exercise price on May 17, 2016 was 24.40 yuan/share. The current stock price is highly secure. Considering the impact of the acquisition of Artixium, it is estimated that the company's preparation for the EPS exam from 2017 to 2019 will be 0.97 yuan, 1.12 yuan, and 1.26 yuan. Based on the elasticity of the company's performance growth, the company can be given a valuation of 30 to 35 times that of 2017. A reasonable valuation for the next 6 months is 29.10 yuan to 33.95 yuan, maintaining a “highly recommended” rating. 4. Risk warning: 1. The performance of the acquired company fell short of expectations; 2. The business integration of subsidiaries fell short of expectations; 3. Competition in the industry intensified.