Performance summary In 2016, the company achieved operating income, operating profit, and net profit of 846 million yuan, 58.717 million yuan, and 12.681 million yuan respectively, up 28.10%, 558.20% and 38.22% over the previous year, respectively. Achieving a fully diluted EPS of 0.04 yuan/share is slightly higher than our previous expectations. Net cash flow from operating activities was $126 million, higher than net profit for the same period. On a quarterly basis, the company's Q1/Q2/Q3/Q4 revenue growth rates were 3.94%/48.09%/40.21%/27.95%, respectively, and net profit growth rates were -178.19%/-181.09%/250.41%/20.13%, respectively. The company's distribution plan for 2016 is to transfer 5 shares for every 10 shares and distribute a cash dividend of 0.15 yuan (tax included). The company expects a loss of 10.214,900 yuan to 13.2794 million yuan in the first quarter of 2017. Operating analysis The revenue growth rate has been corrected, and profitability has recovered slightly. In 2016, the company's revenue resumed growth (+28.10%), and gross margin increased slightly to 30.36% (+6.27pct.). The fee rate for the period decreased by 3.12% pct. Among them, the sales expense ratio and management expense ratio decreased by 0.87pct/1.83pct. , the financial expense ratio was reduced by 0.43 pct. The net profit margin of return is 1.50% (+0.11pct.) , the company's overall profitability has improved slightly. The rectification of the lottery industry is nearing its end, and positive signals are gradually being released. It has been more than two years since the lottery industry began to be reorganized in late 2014. At present, the special audit has been completed, and positive signs that the industry rectification is nearing its end are gradually showing, including: 1) On May 24, 2016, China Sports Lottery tendered for telephone and internet lottery marketing strategy projects; 2) from June 2016 to February 2017, China Sports Lottery tendered for “new game security tests for the Internet system, third party compliance security tests for sports mobile application clients”; 3) From October 2016 to March 2017, the Ministry of Finance's inspection team went to bid for the “Sports Lottery WeChat Development Project”; 4) From February to March 2017, the Ministry of Finance inspection team went to more than 20 Provincial sports lottery centers monitor the rectification of the industry; 5) The pilot period for the only mobile lottery game in China, “Mobile Lottery”, will expire in May 2017. Based on this, we judge that the second quarter may become an important time window for clarifying policies in the lottery industry. The company's lottery business layout continues to be optimized. The company is the earliest and most complete A-share company with a complete layout of lottery systems, game development, and paperless lottery sales. In 2016, in terms of game development, the company's 6 ready-to-open lottery games were included in the China Fucai Center game library; in terms of lottery-related services, the company and Fujian Hongbo Zhiyuan, a wholly-owned subsidiary, won the bid for the “Fujian Fucai Official WeChat Public Platform Construction, Maintenance and Operation Project” and Ganzhou Fucai's “Marketing Service Socialization” pilot project service provider respectively. In September 2016, the company privately issued 34.9821 million shares to 6 issuers, including the current chairman, and raised 762 million yuan to invest in the “Intelligent Management and Application of Lottery Internet of Things” and the “e-Lottery R&D Center” projects respectively, further consolidating the company's leading edge in related fields. The traditional business is growing steadily, and the wine package and smart card printing business has gradually reversed losses. In 2016, the company's ticketing product business increased by 39.47% year-on-year. In addition to the steady growth in the original business, it was mainly due to the increase in revenue from the billing business after the merger of the China Lottery. The overall gross margin of the company's ticketing business increased to 34.06% (+7.00pct.). The two emerging businesses that originally hampered overall performance have made significant progress: 1) the Luzhou subsidiary has benefited from the recovery of the liquor industry and the expansion of new customers, and has developed into one of the major wine box packaging companies in Sichuan; 2) In 2016, the central bank issued the “Notice of the People's Bank of China on Further Strengthening Bank Card Risk Management” in the “Notice of the People's Bank of China on Further Strengthening Bank Card Risk Management”, which promoted the second wave of financial IC changes in the domestic banking industry. The company has obtained VISA, Mastercard, and UnionPay certifications in the last round of changes. Currently, all required qualifications are in place. The company's smart card business has covered mainstream products such as financial IC cards, transportation cards, social security cards, and residents' health cards. In April 2017, the company was shortlisted as a card outsourcer for Everbright Bank, a historic breakthrough for the company in the financial card manufacturing business of commercial banks across the country. It also marks the imminent transformation of the company's smart card business from an investment period to an output period. Risk factors are rising raw material prices and labor costs; lottery ticket sales are declining; and there is uncertainty about the qualification and acquisition of lottery system and game R&D and consignment marketing qualifications. The profit forecasting and investment advice company has a stable position in the lottery printing business, and has a complete layout in lottery systems, games, and paperless lottery sales, which will significantly benefit from the rectification and restart of the lottery industry. At the same time, wine bags and smart tags are also expected to reverse losses. We maintain the company's 2017-2018 EPS forecast of 0.07/0.14 yuan/share, and the 2019 EPS forecast is 0.20 yuan/share (three-year CAGR 74.9%). The corresponding PE score is 293/152/107 times, maintaining the company's “increase in holdings” rating.