Investment Advisory Company's performance in 2016 increased by 55.62%. In the first quarter of 2017, against the backdrop of a sharp rise in raw material prices, it is not easy for the company's performance to still increase slightly. The company became the final buyer of Kumho Tire and is expected to become the world's leading tire company. The majority of controlling shareholders' participation increased, demonstrating confidence in development. We expect the company's 2017-2019 EPS to be 0.18, 0.23, and 0.30 yuan respectively, and the corresponding PE is 40X, 33X, and 25X respectively, maintaining the “highly recommended” rating. Key investment events: The company released its 2016 annual report. During the reporting period, the company achieved operating income of 4.928 billion yuan, an increase of 64.6% over the previous year; realized net profit attributable to shareholders of listed companies of 95 million yuan, an increase of 55.62% over the previous year; realized net profit attributable to shareholders of listed companies after deducting non-recurring profits and losses of 67 million yuan, an increase of 35.43% over the previous year; and achieved basic earnings per share of 0.14 yuan. At the same time, the company announced its 2017 quarterly report. During the reporting period, the company achieved operating income of 1,094 million yuan, an increase of 1.17% over the previous year; realized net profit attributable to shareholders of listed companies of 125 million yuan, an increase of 1.31% over the previous year; realized net profit attributable to shareholders of listed companies after deducting non-recurring profits and losses of 024 million yuan, an increase of 0.84% over the previous year; and achieved basic earnings per share of 0.04 yuan. Demand in the tire industry is improving, and the company's transformation and upgrading have driven the company's performance growth in 2016: In 2016, the demand environment for the tire industry was relatively good. Among them: domestic automobile production increased 14.46% year on year, the growth rate reached a new high in the past three years; the increase in automobile production led to an increase in tire demand; domestic rubber tire outer tire production increased 8.6% year on year; tire export demand was good, and domestic exports of pneumatic rubber tires increased 5.4% year on year. In 2016, the company accelerated the IoT strategy of “three circles of modernization” (market segmentation, organizational platformization, business unit, service 4.0 ecosystem and industry 4.0 ecosystem), accelerated the differentiated innovation of products, accelerated the global layout, and accelerated the corporatization of business units, especially the Star Monkey strategy and supply-side reforms, transformation and upgrading, and achieved good results. During the reporting period, the company's tire sales volume was 11.52 million, up 50.09% year on year, driving the company's overall revenue up 64.6% year on year; however, due to the increase in raw material costs and the decline in export revenue of rubber and plastic machinery due to relocation, the company's overall gross margin was 14.64%, down 4.86 percentage points from the same period last year; the company's expenses were properly managed and controlled, and the cost rate for the period was 12.67%, down 4.56 percentage points from the same period last year. In 2016, the company's tire sales increased and expenses were properly controlled, driving the company's net profit to increase by 55.62% over the same period last year. Raw material prices have risen sharply, and it is not easy for the company's performance in the first quarter to still grow: in the first quarter of 2017, the company achieved revenue of 1,094 billion yuan, an increase of 1.17% over the previous year; during the reporting period, prices of rubber and other raw materials rose sharply compared to the same period last year, but since the company's all-steel tire sales revenue was relatively large, there has also been a sharp increase in the price of all-steel tires since November last year, so the company's gross sales margin fell only slightly by 0.34 percentage points from the same period last year; during the reporting period, the company's expenses rate continued to decline, down 0.72 percentage points from the same period last year; in 2017 In the quarter, the company achieved net profit of 24.62 million yuan, an increase of 1.31% over the previous year. After the Spring Festival this year, rubber prices have fallen sharply, and the pressure on the company's cost has eased somewhat. The company's gross margin is expected to improve month on month in the second quarter. As the final purchaser of Kumho Tire, it is expected to become the world's leading tire company: the company's industrial merger and acquisition fund plans to acquire 42.01% of the shares of Korea Kumho Tire Co., Ltd. Currently, Kumho Tire's founder family has not exercised priority purchasing rights, so Double Star has become the final purchaser of Kumho Tire. Kumho Tire is the second largest tire manufacturer in Korea and the 14th largest tire manufacturer in the world. The company operates globally, and its tire products are sold to more than 180 countries around the world. In 2015, Kumho Tire's revenue was approximately RMB 168 billion, 5.6 times that of Double Star. The current strength of Qingdao Double Star is not only far from international first-tier tire companies, but it also lacks advantages compared to leading domestic companies. If Kumhu is successfully acquired, Qingdao Shuangxing will reach a new level of competitive strength. Not only will it gain a domestic lead, but it is also expected to gain a place in the international market, accelerate Double Star Tire's expansion into the world, help the company achieve a global layout, promote the company's leapfrog development, and promote the rise of China's national tire industry. The majority of controlling shareholders' participation increased, demonstrating confidence in the company's development: In August of last year, the company issued the “Plan for the Non-public Issuance of A Shares”, which plans to issue shares privately to no more than 10 specific investors, including the controlling shareholder Double Star Group. Among them, the subscription ratio of Double Star Group is not less than 23.38%. The total amount of capital raised this time is no more than 900 million yuan, all of which are invested in the Double Star Environmental Protection Relocation, Transformation and Upgrading Green Tire Industry 4.0 Demonstration Base High Performance Passenger Vehicle Radial Tire Project and the Double Star Environmental Protection Relocation, Transformation and Upgrading Green Tire Intelligent Demonstration Base Automated Manufacturing Equipment Project. The majority of controlling shareholders' participation increased, demonstrating confidence in the company's development; the funds raised for the introduction of high-end intelligent tire manufacturing equipment will raise the company's tire manufacturing level and enhance product competitiveness. At present, the company has submitted this fixed “Feedback Response” to the Securities Regulatory Commission. Risk warning: The bid for Kumho Tire failed; the post-market progress fell short of expectations; the risk of a downturn in the all-steel tire industry; the risk of a fixed increase in the delay.