Event: The company released its annual report. In 2016, it achieved operating income of 1,396 billion yuan, an increase of 7.32% over the previous year, and realized net profit attributable to shareholders of listed companies of 406.18,700 yuan, a year-on-year decrease of 5.55%. The company released its 2017 quarterly report. During the reporting period, the company achieved operating income of 352 million yuan, an increase of 27.60% over the previous year, and realized net profit attributable to shareholders of listed companies of 126.12,300 yuan, an increase of 44.86% over the previous year. Core point of view: The company's performance in 2016 was slightly lower than expected, mainly due to an increase of 16.77 million yuan in financial expenses compared to 2015. At the same time, the inventory reserve amount for the reporting period was higher than in 2015, and investment income decreased by 3.77 million yuan. We believe that the long-term logic of the company's development has not changed: the company is a leading “chip-level” power semiconductor enterprise focusing on design+material innovation and special processes, and it is also a scarce “autonomous and controllable” target for A-shares that have accumulated technology for more than 50 years. With the new energy vehicle market booming and third-generation power semiconductors entering a period of rapid development and investment, the company's future prospects are promising. Research and development efforts have continued to increase, high-end products have effectively enhanced market competitiveness, and the NEV field has received good feedback. In 2016, the company further increased R&D investment in new technologies and products. R&D investment accounted for more than 6% of revenue and concentrated on advanced technologies such as fourth and sixth generation IGBT products, COOLMOS products, and TRENCH SBD. At present, the company's sixth-generation IGBT products have been successfully developed and received good application feedback in the fields of new energy vehicles, charging piles, and inverter home appliances. IGBTs are the core components of new energy vehicles and their IPM (intelligent power modules), and there is an urgent need for domestic replacement. We believe that the company has leading technology in the field of new energy vehicle IGBTs, outstanding manufacturing processes, and scarce “actual mass production implementation” capabilities, and is expected to achieve a breakthrough in domestic production in the field of high-end power semiconductors. Demand for the military industry is growing, and the effects of civil-military integration are beginning to show. At the industry level, 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. In 2016, the company actively responded to the country's “civil-military integration” strategic plan, was approved to undertake a number of genealogy projects, obtained relevant qualifications, and became the first batch of pilot units for “civil-military integration”. The effects of the civil-military integration strategy are beginning to show. Strengthen internal management and improve market competitiveness. The company continues to strengthen internal management and strengthen the introduction and training of applied technical talents. At present, the company has established a team of application technical talents with rich application experience and a sense of market development and enriches the market front line. At the same time, the company has continuously strengthened its internal system construction. It has adopted ISO:9001 and ISO/TS16949 quality management systems, which have built a platform for the company's products to enter the automotive field and lay the foundation for expansion in the field of new energy vehicles. Investment advice: Buy-A investment rating. We expect the company's net profit from 2017 to 2019 to be 111 million, 171 million and 233 million yuan respectively, with net profit growth rates of 173.1%, 54.0% and 36.6% respectively, corresponding to EPS of 0.15, 0.23, and 0.32 yuan/share respectively. Industry resource integration trends give the company strong expectations for endogenous and epitaxial development; 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 2017 Dynamic PE 70X, with a target price of 10.52 yuan for 6 months. Risk warning: Macroeconomic downturn, product expansion in new application areas falls short of expectations