1. Overview of the incident Recently, Rong Zhilian released its 2016 annual report and profit distribution plan: 1) In 2016, it achieved revenue of 1,596 billion yuan, a year-on-year increase of 3.19%, and net profit attributable to shareholders of listed companies was 240 million yuan, up 14.89% year on year, after deducting non-net profit of 230 million yuan, up 18.23% year on year. The basic income per share was 0.38 yuan, an increase of 8.19% year on year; 2) It plans to distribute cash dividends of 0.20 yuan (tax included) for every 10 shares. 2. Analysis and judgment are based on enterprise-level IT services. The Internet of Vehicles business has significantly increased profit1, consolidated the traditional advantages of enterprise-level IT services, and achieved remarkable industry expansion results. The company's traditional business is private cloud construction and operation and maintenance services, mainly enterprise-level data centers. The company added multiple energy, government, and large central enterprise customers this year, and continued to increase promotion efforts in virtualization, financial data services, unified storage, etc. Among them, revenue from the energy and government industries increased 23.92% and 32.65% year-on-year respectively. The industry expansion results are obvious, and the advantages of traditional enterprise-level IT services have been consolidated. The amount of cash flow from the company's operating activities was 170 million yuan, an increase of 456% over the previous year. 2. Entered big data and the Internet of Things, and the results of mergers and acquisitions of the two major subsidiaries were realized as scheduled. (1) In 2013, the company acquired 75% of the shares in Vehicle Network Connectivity, which is the premium standard of the Internet of Vehicles, and acquired the remaining 25% of the shares in 2015 to enter the Internet of Vehicles industry. In 2013-2016, Vehicle Network Internet achieved net profit of 0.66/0.83/1.111.43 billion yuan respectively, an increase of 50.13%/25.76%/35%/28.13% over the previous year, exceeding performance promises and significantly increasing the company's big data and IoT sector performance. (2) The company acquired 100% of Taihe Jiatong's shares in 2014. The subsidiary Taihe Jiatong achieved net profit of 3826/5456/77.3 million yuan respectively in 2014-2016, and completed the performance promise as scheduled. (3) Actively develop the UBI (insurance based on customer usage) business. The UBI model has become a relatively mainstream car insurance product pricing method overseas. Its important business development foundation is massive customer and industry data. The company's major fund-raising project “Integrated Operation Service System Project Based on Multi-dimensional Big Data of the Internet of Vehicles” is expected to lay a good foundation for UBI's value-added services. 3. We believe that the connected car industry has huge room for future development. According to data from the Forward-looking Industry Research Institute, the number of domestic Internet of Vehicles users exceeded 10 million in 2015, and the Internet of Vehicles market will exceed 500 billion yuan in 2020. By entering the automotive networking field through epitaxial mergers and acquisitions, the company can not only combine its traditional advantages in IT services, but also seize good opportunities for the development of the Internet of Vehicles industry, thereby building a moat for its own performance. On the basis of maintaining steady growth in traditional business, it is expected to achieve greater development in the Internet of Vehicles field. With in-depth cooperation with BGI, the leading position of biocloud in China may be expected 1. The growth space for genetic sequencing will open up, and demand for biocloud services may explode. According to BCC Research's forecast, the global genetic sequencing market will reach US$11.7 billion by 2018, and the genetic sequencing market has huge scope. As sequencing accuracy improves and costs decrease, future genome-wide sequencing methods may completely replace gene chip methods to generate huge biological data. This will surely place higher demands on IT services, and demand for biocloud computing is expected to explode. 2. Deep cooperation with BGI has obvious competitive advantages in the field of biocloud. (1) The company holds 0.26% of BGI's shares and maintains a long-term stable business partnership with BGI. It has gained sufficient experience in genetic sequencing IT services and occupies an important position in the BGI business chain. (2) In January 2017, the company decided to establish Huada Health Insurance Company with 150 million yuan as a 10% shareholding. It is mainly positioned as a national health insurance company. Key partners include BGI and Shenzhen Venture Capital. This move will expand the company's new business growth points and help continue to consolidate its competitive advantage in gene sequencing cloud services. 3. We believe that based on multiple favorable factors such as the rise in the strategic position of the national gene bank, the huge domestic population base, the liberalization of regulatory policies, the upgrading of healthcare consumption, the rapid development of partner Huada Gene and the reduction in personal genetic sequencing costs, etc., the domestic biogene industry growth space has been opened up, and the resulting bioinformation data will show explosive growth. At the same time, the fundraising project “Biocloud Computing Project to Support Molecular Medicine”, which fits the development trend of the industry, is under smooth construction in the early stages, laying a solid foundation for the company to expand the scale of the industry. The benefits will gradually become apparent, and the company is expected to become the leader in cloud services in the bioinformation industry. 3. Profit forecast and investment recommendations The company's EPS for 2017-2019 is estimated to be 0.54 yuan, 0.70 yuan, and 0.84 yuan, respectively. The PE corresponding to the current stock price is 47X, 36X, and 30X, respectively. Considering the rapid growth of the company's Internet of Vehicles business, the industry is expected to usher in a period of explosion. The company will be given 50-60 times PE in 2017, with a reasonable valuation of 27.0 yuan to 32.4 yuan for the next 6 months, giving the company a “careful recommendation” rating. 4. Risk warning: Competition in the Internet of Vehicles industry intensifies; biocloud business expansion falls short of expectations; new technology advances fall short of expectations.