The overall performance fell sharply in 2016, in line with previous expectations: due to the overall macroeconomic impact, the traditional machinery industry continued to decline in the past five years, and the company's annual operating income in 2016 was 4.28 billion yuan, down 37.66% from the same period last year. The net profit loss was 1.92 billion yuan, of which the asset impairment loss was 549 million, an increase of 530 million over 2015. We judge that the provision is sufficient.

There are plenty of orders on hand, and the rapid growth of future performance is guaranteed. The company benefited from the supply-side reform and Belt and Road Initiative, and the traditional heavy machinery business came out of the ice valley in 2017. At the same time, after a large amount of capital investment and cultivation, the emerging business high-speed rail axles, offshore drilling platforms, offshore nuclear power platform core components are expected to begin to gradually contribute to performance. In 2016, orders totaled 9.564 billion yuan, an increase of 8.84 percent over the same period last year, of which export orders totaled 1.378 billion yuan, up 42.8 percent over the same period last year. At present, the company is expected to double in-hand orders compared with the same period last year, and there is no worry about high performance growth, but the confirmation cycle from heavy machinery orders to revenue and profit is relatively long, which is expected to be more obvious in the profit statement from the beginning of the second quarter.

The reform of state-owned enterprises in Shanxi Province is worth looking forward to. As the only high-quality listed company of heavy equipment in Shanxi Province, the parent company Taizhong Group has high-quality assets such as high-speed rail wheelsets and high-end heavy machinery, which has a strong synergy with the company's business. At the same time, the company belongs to the type of enterprises that the state encourages debt-to-equity swap, there is a possibility of debt-to-equity swap, and the expectation of national reform is strong.

The logic of investment remains the same and strong recommendation is maintained. Based on the existing business, the net profit in 2017-19 is expected to be 2.1,4.4 and 570 million yuan respectively, and the EPS is 0.08,0.17,0.22 yuan respectively. Compared with similar companies, the company has a better business structure and a high position in the industrial system. Combined with the comparable company PS and the overall market capitalization comparison method, the company's current market capitalization is significantly undervalued, maintaining a target market capitalization of 17 billion yuan, a target price of 6.6 yuan, and a highly recommended rating.

Risk hint: supply-side reform slows down; emerging business expansion is low-expected.