Main points of investment

Event: the company has announced that it has completed the establishment of the Intelligent Industry Research Institute with a registered capital of 20 million yuan, accelerating the extension and expansion of the intelligent industry.

Set up the Intelligent Industry Research Institute to accelerate the pace of intelligent industry expansion: in order to get rid of the shackles of the high-speed kilometer charging period, the company has been hoping to open up a second main business, completed the first merger and acquisition in 2016, and chose the electronics industry as the entry point, with good results. In its 2016 annual report, the company clearly stated that it will pay close attention to the opportunities for industry extension such as upstream and downstream enterprise expansion, regional expansion and channel collaborative product development of Miki Intelligence, and look for opportunities to continue to implement industrial mergers and acquisitions or equity investment. this time, we will further complete the Intelligent Industry Research Institute and firmly take the intelligent industry as the direction of transformation. At the same time, as the forerunner of Hubei national reform, the company has completed the employee stock ownership plan in the early stage, which has strong executive power, and the follow-up extension expansion is expected to accelerate.

With the financial support of the parent company, Miki's performance is expected to continue to exceed expectations: Miki Intelligence, founded in 2005, is the first batch of professional ODM manufacturers of mobile phones, tablets and other electronic products in China, with profound technology accumulation and slow development because of its conservative cash flow and business strategy. Chutian Expressway has now completed its acquisition. With the low-cost financial support of its parent company, Miki Intelligence is gradually increasing its efforts to develop the domestic market. The first quarter is off to a good start, with a net profit of more than 10 million yuan. The follow-up is expected to rely on major customers to build boutique models, accelerate the expansion of the domestic market, and help the performance growth continue to rise. At the same time, the company's forward-looking layout in overseas markets and the Internet of things, coupled with a good incentive mechanism. Miki intelligent performance is expected to continue to exceed the performance commitment.

The main highway industry has gradually reversed its losses, with an average annual growth rate of 15%: the company's existing highway assets mainly include Hanyi, Dasui and Huangxian, of which Hanyi has a very strong profitability, and we expect the single net profit to be close to 600 million yuan. however, the two lines in Dasuang and Huangxian section are affected by decapitation and other factors, with an average annual loss of about 180-200 million yuan, which is a drag on the overall net profit of the company's highway business. At present, the construction of the upper and lower reaches of the Dasui and Huangxian section is gradually accelerating, and we estimate that the two loss-making lines are expected to reverse losses of about 60 million yuan a year, coupled with the steady growth of about 3-5% a year in the Hanyi section. the company's traditional business is expected to maintain an average annual growth rate of more than 15 per cent in the future.

Investment advice: with an average annual growth rate of more than 15% in traditional business, Miki Intelligent performance is expected to continue to exceed expectations. We expect the company's annual net profit in 2017-18-19 to be RMB 6.01 million, with a growth rate of 53%, 31% and 20%. Give the highway part 20 times valuation in 2017, Miki Intelligence 40 times valuation in 2017, corresponding to the target price of 8.67 yuan, superimposed potential extension expectations, "Buy" rating.

Risk hint: the loss line reversal range is low expected; Miki intelligent customer expansion progress is low expected.