Incident: The company's performance forecast for the first quarter of 2017 is 689.5561 million yuan to 73.5531 million yuan, an increase of 50 to 60% over the previous year.

We believe that the company's performance forecast is basically in line with expectations. The high increase in performance in the first quarter came from a recovery in computer knitting machine orders and a consolidated report on the mobile internet business. It is expected that the trend of the first quarter will continue throughout the year, with explosive growth in performance.

The stock of knitting machines has entered a renewal cycle, and the company's main business is expected to grow significantly. Currently, there are about 500,000 knitting machines in the entire market, most of which have already reached the renewal cycle. As a leading enterprise in the knitting machine market, the company took the lead in benefiting. Orders have been growing explosively since the second half of 2016, and it is expected that the main business will maintain a growth rate of 40% to 50% over the next three years.

The scale of overseas markets is expanding and seizing overseas market share at an accelerated pace. In 2015, the company's overseas revenue accounted for nearly 40%. The main market, Bangladesh, had a stock of about 300,000 hand-crank machines, and there is an urgent need for upgrades. It is estimated that the company's computer knitting machine exports will grow at a rate of 40% in 2017.

Downstream demand for shoe machines is growing at a high rate, and will gradually expand in the future. Currently, companies such as Nike and Adidas all use fly-woven shoes produced by shoe machines as their main series, and knitting machines are gradually replacing the original shoe-making process. The company's shoe machine increased by 139.43% year-on-year in the first half of 2016. The results are beginning to show, and will continue to grow rapidly in the next few years.

Profit forecast and rating: We expect the company's net profit for 2016-18 to be 130 million, 272 million, and 380 million yuan respectively. The corresponding EPS for 2016-18 is 0.16 yuan, 0.34 yuan, and 0.47 yuan, respectively, and the corresponding PE is 69X, 33X, and 23X respectively. Covered for the first time, giving the company a “highly recommended” investment rating.

Risk warning: Overseas market development risks; new business development falls short of expectations.