Key investment points: leading modified plastics, business trend diversification. The company is one of the leading enterprises in the segment of plastics modified with new polymer materials in China. The main business of modified plastics is mainly used in the fields of wires and cables, energy-saving lamps, electronics and electricity. In recent years, with the rapid development of intelligent electronic products and the strong spread of 3D printing technology, the company is based on its main business, actively expanding upstream and downstream industries, entering the fields of LED optoelectronic materials, CNC metal precision structural parts, and 3D printing materials, and the company's business is diversifying. By optimizing the structure of traditional modified plastic products, profitability is expected to increase significantly. Against an unfavorable macro backdrop such as the slowdown in domestic economic growth, the company's traditional modified plastics business bucked the trend. Through methods such as developing new products and improving the formulation of original products, the gross profit margin of the company's plastic products increased by 17.77% in the first half of 2016, an increase of more than 4 percentage points compared to 2014. Benefiting from the release of production capacity, the company's production and sales of modified plastic products continued to grow. The production and sales of 1H2016 both exceeded 60,000 tons, up 18% and 15.34% year on year respectively, and achieved revenue of 550 million yuan, an increase of 9.73% over the previous year. At the same time, the company's product structure continued to be optimized, new downstream vehicles were added, and the share of high-margin products was increased. The revenue of 2015-1H2016 strengthened toughened materials and plastic alloy products increased by more than 50% year-on-year. In the future, the company will continue to favor products with high gross margin in the modified plastics business, and profitability is expected to increase dramatically. Wholly-owned Xingke Electronics shares the burgeoning dividends of the CNC industry. The company acquired Xingke Electronics through a combination of stock issuance and cash payment, making it a wholly-owned subsidiary of the company. Xingke Electronics promised to achieve net profit of not less than 200 million yuan, 240 million yuan, and 290 million yuan respectively in 16-18. Xingke Electronics is one of the few CNC metal precision structural parts developers with full-process processing capabilities in China. It has a full range of process capabilities such as CNC processing, metal grinding, laser engraving, T-processing, nano-injection, metal sandblasting, and anodizing. It has a remarkable competitive advantage and is in a leading position in the industry. In 2016, Xingke Electronics had impressive performance. In the first three quarters, it achieved revenue of 1,299 million yuan and net profit of 306 million yuan. Compared with 2015, the net profit increased by 154% and 503%, respectively. Among them, net profit has far exceeded performance promises. CNC is mainly used for metal exterior parts of consumer electronics products such as smart phones, computers, and wearable devices. As brands such as Apple, Samsung, Huawei, ZTE, and OPPO have adopted metal cases, the CNC market has ushered in a period of rapid development. The CNC market space is expected to exceed 20 billion US dollars in 2017. After the acquisition is completed, the company will further strengthen its competitiveness in the CNC field and share the explosive dividends of the CNC industry. Together with the traditional modified plastics business, the CNC business will become the twin engines of the company's future performance growth. Accelerate customer development and be optimistic about the company's long-term performance growth. Since this year, the company has been actively expanding new customers, and the customer diversification work is progressing smoothly. Currently, in addition to the original main customer LeTV, it has also successfully entered the supply chains of well-known manufacturers such as Xiaomi and OPPO, and has obtained customer certifications and orders for TCL, Meitu, and Hammer phones. At the same time, the company also leverages its experience and technical advantages in the smartphone market to expand into the tablet field and further enrich the customer structure. We believe that although the slowdown in LeTV orders has put pressure on the short-term performance of the company's CNC business, the company's reduction in dependence on a single customer and the shift to a multi-customer structure is more beneficial to future development, and we continue to be optimistic about the rapid growth of the company's CNC business performance in the medium to long term. The layout is 3D printed, and there is plenty of room for future growth. 3D printing is a cutting-edge rapid prototyping technology that can produce objects of any shape without machining or molds, greatly shortening the product development cycle, and is mainly used in the fields of automobiles, aerospace, medicine, and consumer electronics. In 2015, the global 3D printing market was 1.6 billion US dollars. According to Gartner's forecast, it will increase to 13.4 billion US dollars in 2018, and the market space is vast. A few years ago, the company began to lay out the field of 3D printing. It has now become a leader in polymer materials for 3D printing in China. The main product, nylon powder, has begun mass production, and ABS, PLA wire and composite materials have also achieved full listing and sales. As the domestic 3D printing industrialization process continues to advance, the company's 3D printing business is expected to become a new growth point in the future. Profit forecasts and investment ratings. Considering the impact of additional distribution, we expect the company's EPS for 2016-2018 to be 0.44, 0.70, and 0.81 yuan. The company's technological advantages are obvious. New product development, industrial chain layout, and customer development are all being accelerated. After the acquisition of Xinko Electronics, the CNC business will continue to expand. The company's future development space is worth looking forward to, giving the company 34 times PE in 17 years, corresponding to the target price of 23.8 yuan; giving it an “increase in holdings” rating. Risk warning. The risk of raw material price fluctuations, the risk of increased market competition between modified plastics and CNC products, and the risk of technological innovation falling short of expectations.