Event: The company released its 2016 semi-annual report. In the first half of 2016, the company achieved total operating income of 293 million yuan, an increase of 29.69% over the previous year; and realized net profit attributable to shareholders of listed companies of 454.684 million yuan, an increase of 54.55% over the previous year. According to China Investment Electronics, the company is a leading enterprise in the domestic information security IC design industry. Its products cover various segments such as personal information security and financial information security, and can provide complete information security solutions. The company's management actively responds to market changes, improves management efficiency, continuously optimizes product performance, and innovates the layout of RCC's new application models and business models. We believe that the company's information security chip-related business advantages are clear, providing sufficient impetus for the company to grow; the new business model of trusted computing and RCC has many application scenarios, and there is broad scope for future development, which is expected to open up room for the company's future growth. Key investment points: The USBKEY market is becoming more mature, and the company's products are continuously optimized and upgraded. At present, the domestic USBKEY market is becoming more mature, competition is fierce, and product market prices are expected to show a trend decline. The company actively responds to changes in the USBKEY market, continuously optimizes products, provides products with higher performance and lower power consumption, enhances competitiveness, and develops new products for mobile terminals. At present, mobile network-related products with wireless transmission functions developed by the company have entered the marketing stage and are being piloted in some commercial banks. We believe that with the further penetration of smart terminals and the shift of user habits to mobile devices, the demand for mobile terminal security continues to increase and bring new markets. The company is actively facing changes in the industry and developing products related to the mobile terminal USBKEY, which is expected to open up a new market. Major breakthroughs have been made in financial terminal security chips and security modules. The company actively grasped the period of concentrated explosion in the financial terminal main control chip market, vigorously expanded the financial payment terminal market, and continued to improve product performance. During the reporting period, the company achieved a major breakthrough in the shipment of security chips and modules for financial terminals, and related business became a new growth point for the company's business. Grasping the trend of domestic production of financial IC cards, the industry card market continues to expand. Financial IC cards have a large market space, and the annual market size is expected to exceed 6 billion in the next five years. At present, the localization of financial IC card chips has become an inevitable trend in the industry, bringing development opportunities to domestic smart card chip manufacturers. The company continues to strengthen financial IC card chip research and development efforts, strengthen upstream and downstream cooperation mechanisms and market introduction work in the industrial chain, and prepare for large-scale entry of financial IC cards into the market. At the same time, the company continued to expand the card market in industries such as social security cards and resident health cards, and increased product development and marketing efforts. The sales revenue of residents' health cards increased year-on-year. We believe that the company has strong market competitiveness and industry voice in the field of financial IC cards and industry cards. With the explosion of domestic substitution of financial IC card chips, the company's smart card chip business is expected to achieve rapid growth. Combined with the new mobile Internet business format, RCC is expected to achieve a breakthrough in applications. At present, RCC technical standards have been gradually recognized by the country, and the application environment has gradually improved. The company will continue to strengthen the optimization and non-delivery of RCC products, actively promote the implementation of relevant standards, and continuously explore the RCC mobile payment business model, combine mobile Internet applications, and strengthen industry chain cooperation. We believe that RCC mobile payments are autonomous and controllable, meet the development requirements of the national information security strategy in the long term, have development space and flexibility, and are an important part of the company's development strategy. In the future, it is hoped that they will combine other mobile Internet applications to create a full-function platform and business ecosystem for RCC mobile life and launch a new business model. Improve management efficiency and strengthen supply chain management. The company continues to improve internal management efficiency, improve the accuracy of R&D projects, and balance medium- to long-term versus short-term R&D results. At the same time, strengthening supply chain management and strictly managing all expenses will play a positive role in the company's future long-term development. Give it a “Highly Recommended” rating. Assuming that, driven by autonomy and control, breakthroughs are achieved in mobile payments and security chips, and that RCC's new business model progresses smoothly, the company's performance will achieve rapid growth in the next 3 to 5 years, and can be valued according to high-growth stocks. Net profit for the period 16-18 is estimated at 149/2.45/371 million yuan, EPS of 0.26/0.44/0.66 yuan, with a year-on-year growth rate of 73%/65%/51%, 50 times PE for 17 years, and a first target price of 22 yuan. It has long-term investment value and is rated “highly recommended”. Risk warning: There is a risk that the global macroeconomy is in recession, localization in the field of information security does not meet expectations; demand for security and payment chips in financial and other industries does not meet expectations, and that extension development falls short of expectations.