Event: Recently, we have conducted dynamic research and tracking of the industrial chain. Core view: Semiconductors are conceptually composed of discrete devices and integrated circuits. Power semiconductors are high-value-added products with the highest added value and the highest threshold among discrete devices. Currently, there is huge scope for import substitution and application in the global market. The company is a leading “chip-level” power semiconductor enterprise focusing on design+material innovation and special processes. It is also a scarce “autonomous and controllable” target for A-shares with over 50 years of technology accumulation. As the NEV market is booming and third-generation power semiconductors enter a period of rapid development investment, the company expects to usher in a sustainable rapid development cycle. The industry is growing fast, autonomous and controllable, and a period of opportunity for domestic high-end power semiconductor manufacturers is coming. On November 29, 2016, the State Council announced the “13th Five-Year Plan for the Development of Strategic Emerging Industries”, which clearly states that the proportion of new energy vehicles and new energy applications will be greatly increased to achieve production and sales of more than 2 million vehicles by 2020, with a cumulative production and sales volume of 5 million vehicles. According to data from the China Association of Automobile Manufacturers, last year's domestic production and sales of new energy vehicles were 517,000 and 507,000 units, respectively, up 51.7% and 53% from the previous year. Considering the 2020 production and sales plan of 2 million vehicles, we judge that the production and sales volume of new energy vehicles from 2017 to 2020 will maintain a compound annual growth rate of at least 40.9%, and the industry will maintain rapid growth. IGBT is the core semiconductor power device in new energy vehicles and DC charging stations. We believe that, driven by the rapid development of the new energy vehicle industry, domestic IGBT and its IPM (intelligent power module) market demand will achieve simultaneous rapid growth. Currently, IGBT and IPM are used as separate functional modules in applications. They are mainly occupied by major international manufacturers such as IR, ST, and Infineon. Domestic manufacturers are relatively backward, and there is plenty of room for replacement. Currently, the development trend of electromagnetization of high-end weapons and equipment is clear, and domestic replacement of core power semiconductor devices is imminent. We believe that under the high growth of the industry and the trend of autonomy and control, domestic high-end power semiconductor manufacturers will usher in a period of historical opportunity, and the first manufacturers to achieve breakthroughs in localizing high-end devices, such as IGBTs, will achieve rapid development. At the industry level, the military industry's demand for power semiconductor devices is increasing, and the development trend of electromagnetization of high-end weapons and equipment is obvious; in the construction of new military forces, the increase in military spending will be more inclined towards high-end weapons and equipment; the country's “autonomy and control” requirements push China's core power semiconductor devices to achieve import substitution, and various factors are driving a huge market for military power semiconductors. R&D investment continues to increase, and core technologies such as IGBT are expected to achieve breakthroughs. The company continues to increase investment in R&D to gradually increase the technical content and added value of products. According to the 2016 semi-annual report, the company spent 43.467 million yuan on R&D in the first half of 2016, an increase of 43.51% over the previous year; R&D expenditure accounted for 7.11% of revenue, an increase of 1.6 percentage points over the same period last year. Driven by continuous R&D investment, the serialization of sixth-generation IGBT, MOSFET, TRENCH SBD, FRD and SCR products for high-end applications is progressing smoothly. Especially in the IGBT manufacturing process, the company has made great progress and already has scarce “actual mass production implementation” capabilities. We believe that the company not only has long-term process accumulation in the production and manufacture of power semiconductor devices, but also closely follows advanced international manufacturing processes and grasps the development trend of the industry. The company already has a high level of mass production technology and technology for high-end products such as IGBT, and is expected to achieve a real domestic breakthrough in the field of high-end semiconductor power devices. The third-generation power device market has huge potential, and the company has subjective and objective conditions for relevant technology upgrades. Third-generation power semiconductors and existing high-end silicon-based products have obvious inheritance in core technical aspects such as materials, structures, processes, and packaging. Under the company's IDM model, it can meet the development needs of new materials and devices. The upward expansion of technology has been completed, and the expectations for technological upgrading and development are adequate. Investment advice: Give a buy-A investment rating for the first time. We expect the company's net profit from 2016 to 2018 to be 63 million, 151 million and 256 million yuan respectively, with net profit growth rates of 45.9%, 140.0%, and 70.2% respectively, corresponding to EPS of 0.09, 0.20, and 0.35 yuan/share, respectively. Industry resource integration trends give the company strong internal and epitaxial development expectations; military/new energy needs urgent breakthroughs, and continuous optimization of profitability for high-value-added products; under the emerging pattern of power semiconductor strategy, the current situation of “large industry and small companies” gives sufficient space; given the high future performance growth and PEG considerations, and the potential to break through the industry's high valuation center, gave the 2017 dynamic PE 59X, with a target price of 12.04 yuan for 6 months. Risk warning: Macroeconomic downturn, product expansion in new application areas falls short of expectations