Description of the incident Huapengfei released the 2016 mid-year report. The company achieved operating income of 281 million yuan in the first half of the year, a year-on-year decrease of 16.61%, gross margin increased 9.99 percentage points to 29.04%, net profit attributable to the parent company was 34.554 million yuan, up 127.73% year on year, and EPS was 0.12 yuan, compared to 0.18 yuan for the same period last year. Incident review The decline in revenue was mainly affected by the sale of Demaco. Demaco is a subsidiary of Huapengfei that mainly engages in R&D and sales of machinery and equipment. In the first half of 2015, its revenue accounted for 28.43% of the company's total revenue. The company's revenue fell 16.61% year on year in 2016, mainly because in November 2015, the company sold 85% of the shares of Shenzhen Demaco Intelligent Machinery Co., Ltd., which was not in line with the company's business of building a supply chain ecosystem. Attributable net profit has risen sharply, and profitability is expected to continue to improve. The company achieved imputed net profit of 34.554 million yuan in the first half of 2016, up 127.73% year on year, and gross margin increased 9.99 percent year on year to 29.04%. The main reason is that the company acquired Bohan Weiye in 2015 to enter the mobile informatization field with a high level of gross margin. Bohan Weiye is one of the few companies in the industry that can provide software+hardware+operation and maintenance+data analysis services. The gross margin of its mobile informatization business is basically over 50%. At present, the company has reached a cooperation with China Post to provide PDA terminal support for EMS. It is expected that China Post's business alone will guarantee a 10% increase in the company's performance. At the same time, Bohan Weiye plans to acquire 51% of Hongtu Chuangzhan's shares. Relying on Hongtu Chuangzhan's powerful data collection and processing capabilities, the company is expected to enter the high-margin smart city and logistics network fields. In the future, as the company's share of high-margin business increases, the company's profitability is expected to continue to improve. Entering the medical field to drive performance growth. With the development of the Internet, the informatization upgrade of traditional hospitals has become a development trend in the medical field. Through cooperation with Sichuan Telecom, Bohan Weiye took the lead in launching a “mobile nursing station” project in Sichuan to provide integrated services for the hospital's informatization upgrade. Currently, it has been promoted in regions such as Henan, Hunan, and Shenyang. Although it is difficult to standardize and replicate mobile nursing station projects due to differences in different hospital systems, the company's integrated business model can better solve the pain points of expensive hospital informatization transformation and long training times. In the future, the project is expected to be promoted nationwide, driving the company's performance growth. Maintain the “Overweight” rating. Considering 1) Huapengfei's integrated software and hardware business model is very attractive to small and medium-sized express delivery companies; 2) there is huge scope for intelligent mobile service, the company's expansion across industries is full of room for imagination. We expect the company's 2016-2018 EPS to be 0.50 yuan, 0.68 yuan, and 0.87 yuan, respectively, and the corresponding PE is 61 times, 45 times, and 35 times, respectively, to maintain the “increase in holdings” rating. Risk warning: Bohan Weiye's cross-industry expansion is slowing down, and the promotion of the “Mobile Nursing Station” project falls short of expectations