Key investment matters: On the evening of February 15, 2017, Yingtang Intelligent Control released the 2016 annual report and the performance forecast for the first quarter of 2017. In 2016, the company achieved revenue of 4,222 billion yuan (138.35% YoY), net profit attributable to shareholders of the parent company of 210 million yuan (435.50% YoY), and plans to distribute a cash dividend of 1.20 yuan for every 10 shares. The performance forecast for the first quarter of 2017 shows that the net profit of the mother was about 23-28 million yuan, a year-on-year decrease of 66.65%-59.4%. Ping An's view: In 2016, performance increased more than fourfold, and net operating profit doubled in the first quarter: Yingtang Intelligent Control achieved revenue of 4.222 billion yuan in 2016, an increase of 138.35% over the previous year, and net profit attributable to shareholders of the parent company was 201 million yuan, an increase of 435.50% over the previous year. Mainly because of the following points: 1) The company's transformation of distributors has seen initial results. Huashanglong's merger has expanded and optimized component product lines and customers, and strengthened the layout of customers in industries such as smart chips, new energy vehicles, security, and intelligent rail transit; 2) The company has increased its external resource integration efforts and strengthened internal management such as cost control, order management, and organizational optimization. The ratio of management expenses to turnover decreased by 47.76% year-on-year; 3) The company's equity transfer in the first quarter of 2016 brought about 60 million investment income. The performance forecast for the first quarter of 2017 shows that the net profit of the mother was about 23-28 million yuan, a year-on-year decrease of 66.65%-59.4%. After excluding investment income in the first quarter of '16, the company's net operating profit increased 115.09%-161.85% year on year. Mergers and acquisitions integrate the distribution industry and strengthen industry leadership: After completing the integration of Huashanglong, on May 5, 2016, the company announced in-depth cooperation with Baijian Electronics. Baijian Electronics is an important agent and partner of internationally renowned IC brands (Lou's, MicroChip, ISSI, Winbond, Diodes, etc.) in mainland China and Hong Kong. On June 24, 2016, Huashanglong increased the capital of Shenzhen Hiweiss, subscribed for 60% of Shenzhen Hiweiss's shares, and became the controlling shareholder of Shenzhen Hiweiss. In 2016, Hiweiss's revenue reached more than 1 billion yuan, and will continue to grow rapidly in the next few years. Its products are mainly capacitive touch screen drives, gravity acceleration, magnetic sensors, gyroscopes, fingerprint sensors, and many other products with leading technology and broad market prospects. On November 21, 2016, the company established a long-term partnership with Shenzhen SkyEasy Technology Co., Ltd. and SkyEasy Technology (Hong Kong) Co., Ltd. The main products of SkyEasy are the conductors and semiconductor products of Samplas, MPS and Sanken, which are mainly used in home appliances, consumer electronics and industrial manufacturing. On January 21, 2017, the company plans to acquire 48.45% of Lianhe Chuangtai's shares for HK$48.45 million. United Chuangtai is an authorized distributor of electronic component products with rich agency distribution experience. Currently, it is a supplier of MTK, the world's second largest main control chip brand, and SK Hynix, the world's second largest memory. The company's continuous integration in the distribution industry has enhanced the company's comprehensive business capabilities, greatly enhanced the company's competitiveness in the industry and the company's leading position in the industry. The long-term value of the proposed repurchase of the company's shares is evident: At the end of January, the company's shares declined continuously. Based on management's recognition of the company's future prospects and company value, and in order to improve the profitability of the company's assets and protect investors' interests, the company plans to repurchase no more than 400 million yuan of shares at a price of no more than 10.32 yuan/share. A full repurchase is expected to account for 3.62% of the total share capital. Prior to that, the company announced the completion of the employee stock ownership plan on June 20, 2016, and purchased 20.81 million shares through the secondary market, accounting for 1.945% of the company's share capital. The average purchase price was 1,065 yuan, with a total purchase price of 209 million yuan. The company has successively carried out employee shareholding and share repurchases in this price range, demonstrating the company's confidence in future development and highlighting long-term value. Investment Strategy: Yingtang Intelligent Control's transformation of distributors has seen initial results. In 2016, it achieved high performance growth, and integrated and absorbed many high-quality brands such as SK Hynix, MTK, Lou's, Dexin, Microchip, Huiding, and Sanken in the distribution field. At the same time, in 2016, employees bought shares in the secondary market at an average price of 1,065 yuan for employee ownership. Currently, they are actively promoting the repurchase of 400 million yuan of shares, demonstrating the company's confidence. We expect the company's revenue in 2017-2019 to be 50.99/56.09/6.170 billion yuan, net profit of 2.46/2.66/297 million yuan respectively, corresponding EPS of 0.23/0.25/0.28 yuan, and corresponding PE of 40/37/33 times, maintaining the “recommended” rating. Risk warning: M&A integration falls short of expectations; industry competition intensifies; agency authority risk.