Event: Tongfang released its semi-annual report on August 30, 2016. in the first half of 2016, the company realized operating income of 10.655 billion yuan, an increase of 0.90% over the same period last year, and a net profit of 4.957 billion yuan for shareholders belonging to the parent company, an increase of 462.21% over the same period last year. Net profit of shareholders belonging to the parent company after deducting non-recurring profits and losses-480 million yuan, year-on-year change-228.38%. Based on the latest share capital, diluted earnings per share is 1.6724 yuan.

Comments:

The operating income is steadily rising, and the profit level has declined. In the first half of 2016, the company's operating income was basically the same as that of the same period last year, while the net profit belonging to shareholders of listed companies increased by 462.21% compared with the same period last year, mainly because the company transferred its controlling interest in Ziguang National Core to Ziguang Chunhua, terminated the consolidation of its financial statements, and determined a large amount of investment and disposal income. After deducting non-recurring profits and losses, the net profit attributable to shareholders of the listed company is-480 million yuan, which is-228.38% higher than the same period last year. On the one hand, this is due to the depressed market demand, intensified competition and lower gross profit margin; on the other hand, the business collaboration between the computer and multimedia sectors that the company is looking forward to has not been realized. In addition, the semiconductor lighting industry under the company is affected by the imbalance between supply and demand in the LED chip industry and the continuous sharp decline in product prices, while its own fixed costs remain high and the upgrading of process technology lags behind, the profitability of this sector has declined significantly, causing a drag on the company's overall profits.

The computer business has repeatedly won big orders, and the revenue is growing rapidly. In terms of industry sectors, the revenue share of Internet services and terminal sectors is the highest among the four sectors, with revenue of 6.286 billion yuan in the first half of the year, a year-on-year growth rate of 4.46%, which is also the highest among the four sectors. In the main computer business, the company continues to seize the development opportunities provided by the independent and controllable national policy for national brands, and has repeatedly won large orders in the centralized procurement projects of national governments at all levels. The company has won many bids in the first and second phases of the desktop computer batch centralized procurement project of the central government organs in 2016 and the first quarter of 2016 in the national tax system batch procurement project; in the first half of the enterprise market, the company has successively won the bid for CAAC Information 2015 Open platform computer Resources Purchasing Project, CBRC Server bidding Project, Network Security Center Server Purchasing Project, Xinjiang Public Security system Server Purchasing Project and so on.

The return on investment led to a substantial increase in profits. The investment income in the first half of 2016 was 7.204 billion yuan, an increase of 397.67% over the same period last year, mainly due to the company's sale of the controlling interest (36.39% equity) of Ziguang National Core and the recognition of the remaining equity (4.99%) as available-for-sale financial assets at fair value. The investment income has greatly boosted the company's profit level, resulting in a substantial increase in the company's homing net profit in the first half of the year. At present, the company still has a number of holding and shareholding subsidiaries, which is expected to continue to provide investment income for the company in the future, driving the growth of the company's performance.

Earnings forecast and rating: we expect the company's operating income in 2018 to be 30.224 billion yuan, 32.892 billion yuan and 35.805 billion yuan respectively, and the net profit attributable to the parent company to be 6.561 billion yuan, 1.849 billion yuan and 1.984 billion yuan respectively. Earnings per share based on the latest share capital are 2.21,0.62 yuan and 0.67 yuan respectively, and the latest share price corresponds to 7 times, 24 times and 22 times of PE respectively. Maintain the "overweight" rating.