Incident: Lanhai Huateng released its 2016 annual report. During the reporting period, it achieved operating income of 677.86 million yuan, an increase of 118.79% over the previous year; net profit attributable to the parent company was 155.27 million yuan, an increase of 118.88% year on year; net profit attributable to the parent company after deducting non-recurring profit and loss was 152.84 million yuan, an increase of 116.36% year on year. Achieved a basic EPS of 1.59 yuan per share. The company plans to pay a cash dividend of 3.00 yuan (tax included) for every 10 shares, and transfer 10 shares for every 10 shares to all shareholders using the capital reserve fund. At the same time, the company released its report for the first quarter of 2017. During the reporting period, it achieved total revenue of 134.44 million yuan, an increase of 56.65% over the previous year, and achieved net profit of 34.57 million yuan to mother, an increase of 34.01% over the previous year. Logistics vehicle motor controllers contributed greatly and will open up the passenger car market in the future: during the reporting period, the company's electric vehicle motor controller products achieved sales revenue of 554.88 million yuan, an increase of 165.44% over the previous year, accounting for 81.86% of revenue. The company is a major supplier of electric vehicle motor controllers in China. The products are at the leading level in the industry in terms of performance, reliability, service life, safety protection, integration, etc., and are widely used in various models of mainstream domestic NEV and pure electric logistics vehicle manufacturers. In 2016, when the overall sales growth rate of new energy vehicles declined, the company quickly responded and launched motor controller products and systems suitable for pure electric logistics vehicles while consolidating its leading edge in the field of energy saving and new energy buses, increasing the expansion of the field of special vehicles such as pure electric logistics vehicles, and grasping the restorative growth of logistics vehicles, thus bringing a high growth rate to this business. The annual revenue from the logistics vehicle sector accounted for 50% of the revenue from the electronic control business. In the future, the company will actively expand the passenger car market while meeting the demand for buses and logistics vehicles. The company has now set up a dedicated passenger car R&D team, introduced relevant technical personnel, and carried out technical research and user contacts. Some prototypes are expected to be launched this year. The NEV market continues to be booming. In the future, with the opening up of the NEV market and the consolidation of the advantages of the bus logistics vehicle market, this business is expected to continue to grow at a high rate. The industrial control industry picked up, and the company's inverter business and servo drive business grew steadily: during the reporting period, the company's medium- and low-voltage inverter and servo driver business achieved a total revenue of 110.02 million yuan, maintaining steady growth. (1) Medium and low voltage inverter business: This business achieved revenue of 97.93 million yuan during the reporting period, an increase of 15.23% over the previous year. The company is a technology-leading supplier of medium- and low-voltage inverters among domestic enterprises. It produces general products and industry-specific products, which can be used in various industries of the national economy such as lifting, air compressors, machine tools, printing and packaging, metallurgy, petroleum, textiles, and water supply. The company's inverter products have stable performance and have been extensively assembled to mainstream domestic manufacturers in the downstream industry. In the future, the company will invest in the development of special inverter products that meet the special needs of the industry and continue to penetrate the downstream market. (2) Servo drive business: This business achieved revenue of 12.09 million yuan during the reporting period, an increase of 26.56% over the previous year. At the same time, gross margin reached 61.24%, an increase of about 6 percentage points over the previous year. The servo drives produced by the company include asynchronous servo drives and synchronous servo drives. Among them, asynchronous servo drives are widely used in the domestic hydraulic system transformation market such as injection molding machines and die-casting machines. The company's servo drive products have excellent performance and obvious energy saving effects. At the same time, they have the production advantages of low system cost and short return on investment cycle. The company currently focuses on expanding the power range and application areas of existing servo drive products, and will gradually introduce integrated industrial automation control products and energy-saving solutions to customers in the future. Leading the technology level in the industry, adhering to the leading strategy of R&D investment: the company has advanced vector control technology without speed sensor vector control technology. The above technology has effectively improved the torque characteristics, dynamic response, control accuracy, etc. of motor controllers, and can meet the middle and high-end applications of many industries. At the same time, the company focuses on developing product systems in specific fields based on inverter technology, such as sine wave control systems for high-dynamic pipe piles, high-precision automatic correction lifting control systems, etc., and carries out customized design on the basic platform of general products to provide customers Customized requirements. Furthermore, the company has always adhered to a technology-leading strategy to maintain the sustainability of R&D investment. During the reporting period, the company invested 48.99 million yuan in R&D expenses, accounting for 7.23% of current revenue, and a growth rate of 42.20% compared to 2015. As of December 31, 2016, the company's R&D technicians accounted for 40.79% of the total number of employees, obtained 39 patents, 18 computer software copyrights, obtained 8 software product registration certificates, and possessed many core technologies. Investment advice: The target price for 6 months is $82.00, maintaining a buy-A investment rating. The year-on-year growth rates of the company's revenue in 2017-2019 are 41.2%, 41.2%, and 41.4%, respectively; net profit to mother is 38.1%, 35.2%, and 35.1%, respectively; without considering dividend dilution, EPS is 2.06, 2.79, and 3.76 yuan, respectively. Considering the steady expansion of the company's electric vehicle motor controller business and the recovery of the industrial control industry, the six-month target price is 82.00 yuan to maintain a buy-A investment rating. Risk warning: New energy vehicle emissions fall short of expectations, passenger car motor controller expansion falls short of expectations, and market competition intensifies.