Key investment points 1. The company is a leading liquid food packaging machinery company. The 2016 performance forecast is in line with expectations. The company is expected to achieve net profit of 1.47-167 million yuan in 2016, up 10%-25% from the previous year. The impact of non-recurring profit and loss on the company's net profit was 4 to 5 million yuan. The performance is in line with expectations. The company is an intelligent liquid food packaging machinery manufacturer integrating R&D, manufacturing and sales. It is mainly positioned to design and manufacture high-end liquid food packaging equipment. Its main products include filling various types of liquid food Sealing equipment, back-end intelligent packaging equipment, hollow container blow molding equipment, etc. The company's products are widely used in dairy products, beverages, edible oils and fats, condiments, daily chemicals and other industries. The company has developed into a leading domestic liquid food packaging machinery manufacturer. The company's dairy packaging machinery market share has ranked first among domestic peers in the past three years. The company's annual revenue comes from the dairy industry. The dairy packaging industry has high technical barriers and high requirements for equipment sterilization treatment and product mechanical stability. The comprehensive gross margin of the company's packaging equipment has remained at a high level of more than 50%. From 2011-2015, the company's compound revenue growth rate reached 22%, and the compound net profit growth rate reached 18%. 2. Demand in the dairy beverage industry is gradually increasing, expanding the performance space for many major downstream customers. As China's living standards improve, people's awareness of consuming high-nutritional value food and beverages continues to rise, bringing about rapid development in the domestic dairy beverage industry, but the per capita amount of milk and non-carbonated drinks is still far lower than in developed countries. With the adjustment of product structure, the packaging machinery market demand is broad. According to the Freedonia Report, the total demand for packaging machinery in China will reach 40 billion yuan, of which the total demand for dairy machine beverage packaging machinery will reach 8.24 billion in 2021 115 billion. Some high-end liquid food filling machinery in China still relies on imports. The company has achieved import substitution for high-end liquid food packaging equipment. Compared with similar products, foreign companies have a price advantage of 30%-40%. It has maintained long-term stable cooperative relationships with high-quality companies such as Danone, Mengniu, and Yili. In terms of back-end packaging equipment, the company will also expand markets in downstream industries such as healthcare, solid food, and electronics. Currently, it has added new customers in the beverage and pharmaceutical industry such as Tomson Beijian, Hengrui Pharmaceutical, and Hengshun Liquor. It is expected that more downstream coverage will open up room for the company's performance growth in the future. 3. The company continues to lay out the entire smart packaging industry chain to consolidate the leading position of intelligent packaging equipment. In addition to providing leading domestic liquid food packaging equipment, the company also extends appropriately to the downstream service end of the industrial chain according to customer needs, supporting the construction of “satellite factories” and providing plastic packaging products “door-to-door” to provide customers with overall smart packaging solutions. The company also continues to develop new products: 24,000 bottles/hour ultra-clean rotary plastic bottle filling and sealing equipment, 24,000 cans/hour ultra-clean linear plastic can filling equipment, fully automatic smart packing machine for milk powder (with spoon function), fully automatic Tetra Pak sleeve smart wrapping machine, spider-shaped intelligent robot, six-degree-of-freedom intelligent joint robot, etc., further enriching the company's product range and consolidating the company's leading position in intelligent packaging equipment. 4. Investment advice: The company is expected to achieve net profit of 161 million, 194 million, and 226 million yuan in 16-18, corresponding EPS of 0.60, 0.72, 0.84 yuan, and corresponding PE of 51X, 42X, and 37X, giving recommended ratings. 5. Risk warning: Demand in the downstream liquid food industry is declining