The investment advice company has clarified the development strategy of aircraft tire reconstruction+automobile two-wheel drive. By investing in Wuxi Pteron, the company will benefit from the blue ocean market of aircraft tire remanufacturing, and this business will contribute to the company's performance growth over the next 3-5 years. In terms of auto parts, the main business is growing steadily, and the company is also actively seeking external development in the automotive sector. We believe that the company's two-wheel drive strategy is clear, and future performance growth can be expected. Assuming that the company holds shares in Pterosaurs in 2017, the 2016-2018 EPS is expected to be 0.20 yuan, 0.29 yuan, and 0.37 yuan, respectively, and the corresponding PE is 70X, 48X, and 38X. First coverage, giving a “recommended” rating. Key investment points The aircraft tire remanufacturing business is the biggest highlight of future performance: the company invested 587.755 million yuan in 36% of the shares of Wuxi Pterosaurs. Pterosaurs is mainly engaged in the remanufacturing of aviation tires, automobile tires, and industrial vehicle tires. There are certain qualifications and technical thresholds in the aircraft tire remanufacturing business, as shown in: 1) Engaging in aircraft tire remanufacturing requires obtaining a maintenance certification issued by the General Administration of Civil Aviation. Currently, only two domestic companies have qualifications; Pterosaurs is one of them (foreign-funded enterprises such as Michelin and Princeton also have them). 2) After obtaining maintenance certification, the company also needs to pass test flights to obtain remanufacturing qualifications for different part numbers (tire models). The Pterosaur has now obtained 19 out of 23 Boeing models. Also, one domestic company currently does not have 3) Maintenance certification from various airlines. Currently, the company is already in contact with China Eastern Airlines and Air China for small-batch supply with Hainan Airlines and China Southern Airlines. The aircraft tire remanufacturing market is close to 10 billion dollars, and the profit is rich: the current domestic aircraft fleet is around 10,000 (including civil aviation, aviation, and military aircraft), and the number of aircraft tires varies between 6, 10, and 14. On average, each tire is replaced 15 times a year. According to the price of a single remanufactured tire, the annual tire remanufacturing scale is about 7 billion yuan. The gross margin of aircraft tire recycling is high, with an average of more than 50%. Pterosaurs has an obvious cost performance advantage: compared with brand new tires, remanufactured tires can be recycled and reused, and the cost of raw materials is lower. The price of a remanufactured tire is usually 40%-50% of a brand new tire. However, compared to international companies such as Michelin, the unit price of Pteroson recycled tires is only about half that. The unit price of Michelin remanufactured tires is 80,000 yuan/piece, while the Pterosaur's is only 4,500 yuan/piece, which has a clear cost performance advantage. The four major domestic airlines all have cooperation intentions. The key lies in the company's production capacity development progress: Hainan Airlines and China Southern Airlines already have full business communication with Pterosaurs, and Air China and China Eastern Airlines are also in contact with Pterosaurs. The company is the only independent tire remanufacturing company in China, and at the national level, aircraft tires have a certain strategic reserve significance. We expect that within the next 1-2 years, Pterosaurs will continue to receive purchase orders from the top four domestic airlines. Currently, the production capacity of Pterosaur aircraft tires is only 15,000 tires (Wuxi factory). The first phase of the Changzhou plant will be put into operation one after another in September next year, and is expected to achieve a production capacity of 100,000 tires in 2019. Pterosaur's promised net profit of 5 million, 30 million, and 50 million in 2016-2018 is a probable event. The company's main business is growing steadily: 1) Needle roller bearings. The company's needle roller bearings already account for more than 50% of purchases of products such as Valeo and Bosch. We expect to maintain a steady growth of 8%-10% in the future. 2) Beyond clutches, it is mainly equipped with motorcycles. Future development will focus on the Southeast Asian market, but the motorcycle industry's performance has been sluggish in recent years, and we anticipate that there is still a possibility of a decline in the future (growth rate -10% to 0%). 3) OAP was a fund-raising project during the company's 2011 IPO, with a production capacity of 1 million units. Since it has not passed Valeo's assessment, it is still mainly supplied to the automotive aftermarket. The company's OAP products have already passed 28 of Valeo's 29 indicators, so it's only a matter of time before they pass its review system. We have determined that the business will be able to achieve growth of about 20% within the next 2-3 years. OAP is expected to contribute around 20 million dollars in net profit after delivery. The company's development ideas are clear. Airplane+automobile two-wheel drive: the company has visited and participated in many mergers and acquisitions projects in the past two years, and there are many directions (military, smart homes, air conditioning bearings, etc.). After the Pterosaur project was decided, the company officially clarified the future development direction of airplane+automobile business. The aircraft side will build the company's aviation business around tire remanufacturing. On the automobile side, while strengthening its main business, smart cars will be the main direction of its expansion. Risk warning: The progress of the Pterosaur aircraft tire project and automobile extension fell short of expectations.