Performance Overview

In 2016, the company realized operating income of 230 million yuan, an increase of 39.56% over the same period last year. The net profit belonging to shareholders of listed companies was 29.91 million yuan, an increase of 27.86% over the same period last year. The net profit after deduction was 31.23 million yuan, an increase of 971.17% over the same period last year. The profit distribution plan is: cash dividend of 1 yuan (including tax) for every 10 shares.

Business analysis

The acquisition of Shikai technology has been completed, forming three major business plates. During the reporting period, the company completed the acquisition of Shikai Technology, transforming from a single coal mine safety monitoring business to three major business sectors: military industry, traditional coal mine safety supervision business and rail transit informatization. In 2016, the company's coal mine safety supervision business income improved, rail transportation informatization achieved great growth, and Shikai science and technology military industry business was included in the consolidated statement, resulting in a substantial increase in the overall operating performance of the company, with an increase of nearly 40% in operating income compared with the same period last year. Net profit belonging to shareholders of listed companies increased by 28%.

The military industry business has achieved performance growth, and the strategic transformation has achieved initial results. In October 2016, the company completed the acquisition of Shikai Technology and included in the consolidated statement, the main products are missile guidance systems and precision optical systems, contributing 18.82 million yuan in revenue and 67% gross profit margin. In 16, Shikai Technology deducted 61.03 million yuan in net profit, and 102% of Shikai Technology's 18-year profit commitments were 73 million yuan and 86 million yuan, respectively. A number of Shikai science and technology products have been officially listed and equipped in batches, some of which are exclusively produced by the company, and the continuous and stable characteristics of military procurement provide a guarantee for the stable growth of the company's military business. In addition, the first batch of funds for the military-civilian integration venture capital fund established by the company in cooperation with Luxin Venture Capital and Xi'an Municipal Government has entered the project inspection and investment stage.

The traditional business benefited from the recovery of coal, and the business performance improved. Coal prices rebounded in 2016, benefiting from the recovery of the downstream coal industry, the company's traditional business performance improved. The revenue of coal mine safety monitoring system and related products in 2016 was 67.49 million yuan, an increase of 29.07 percent over the previous year, accounting for 29.3 percent of revenue, and the gross profit margin of products was 56.6 percent, down 4.65 percent from the same period last year. The company has many years of experience in the coal mine safety service industry, the coal mine roof monitoring and monitoring occupies a leading position in the subdivision industry, and the core management team maintains the stability of the coal mining sector business under the depressed market environment. It is expected to benefit from the gradual transmission of profit improvement of downstream coal enterprises.

The transformation of communications services has achieved remarkable results, with a two-pronged approach for civil and national defense. Fuhua Yuqi, a subsidiary, completed the transformation from a single coal mine underground communication business to multi-industry business such as rail transit communications and big data system integration analysis in 2016. In 2016, the revenue of communications business reached 138 million yuan, accounting for 60% of revenue.

The company occupies more than 70% market share in Prep WIFI, and has become one of the first enterprises to develop and supply products for high-speed rail wireless communications. with the development of rail construction in China and Belt and Road Initiative, it will provide more development space for the company's rail transit information business. In addition, Fuhua Yuqi has set up the military Industry Department and cooperated with Shikai in science and technology to advance into the national defense information business, which has made some progress and will become another important increment in the communications sector.

Profit forecast

We forecast that the company's operating income from 2017 to 2019 will be RMB 486,582 million, an increase of 68%, 25% and 20% respectively over the same period last year; and the net profit of 80 million / 103 million / 126 million yuan, an increase of 167% and 167% respectively over the same period of the same period last year, with an increase of 0.12%, 0.1616 and 0.19 respectively, and the corresponding PE will be times higher than that of 89-69-56.

Investment suggestion

We believe that the military industry transformation of the company has been completed, Shikai science and technology has become the main force of the military business, the existing and developing products can guarantee performance growth, and the military-civilian merger and acquisition fund provides a sustainable expansion direction; Fuhua Yuqi product transformation in the field of rapid growth; the profit improvement of downstream coal enterprises is conducive to the recovery of demand for traditional main products.

Maintain the company's "buy" rating, with a target price of 14016 yuan for the next 6-12 months.

Risk hint

The risk of M & An integration, military investment is not as expected, coal prices have fallen sharply.