Report summary: In the first half of 2016, the company achieved operating income of 533.718,800 yuan, an increase of 32.97% over the same period last year, mainly due to the additional merger of Guanzhi Automation and Huaxiao Precision; net profit attributable to shareholders of listed companies was 74.4998 million yuan, an increase of 20.97% over the same period last year. Acquire Guanzhi Automation and Huaxiao Precision to fully promote intelligent manufacturing business: In 2016, China will fully implement “Made in China 2025”, and the intelligent manufacturing space is vast. The company is based in Yongqian Electromechanical. Through the acquisition of Guanzhi Automation and Huaxiao Precision, the company has reached a complete industrial chain for intelligent manufacturing, and has further penetrated the supply chain system of automobile OEMs. Guanzhi Automation has long served German brands such as Volkswagen, and has rich experience in automotive side and bottom panel automation; Huaxiao Precision is Nissan's global strategic partner, and the AGVs produced are widely used in assembly workshops. In the future, the company is expected to use the technical and resource advantages of the three companies to deeply penetrate the supply chain of automobile OEMs, and rapid development can be expected. The main business grew steadily and entered the field of logistics and warehousing automation: Competition in the original power distribution automation industry has intensified since 2011, and the company's gross margin and profitability have declined markedly. Beginning in 2013, the company's business bottomed out, and achievements in R&D and market development gradually became apparent. Sales of distribution electrical products increased, and gross margin gradually rebounded. In the first half of 2016, distribution and rail traffic automation achieved revenue of 262 million yuan, an increase of 28.43% over the previous year. The company established the HKUST Logistics Company as a joint venture, which is mainly engaged in the development and production of automated equipment and systems for warehousing and logistics, commercial distribution and e-commerce logistics. In the first half of 2016, we achieved operating income of 15.37 million yuan and gross margin of 59.61%. Revenue was mainly from logistics automation transformation projects, with lower costs and higher gross margin, which will become a new profit growth point in the future. Investment recommendations and ratings: The company's net profit for 2016-2018 is estimated to be 244 million yuan, 320 million yuan and 414 million yuan, EPS is 0.35 yuan, 0.45 yuan and 0.59 yuan, and PE is 75 times, 57 times and 44 times, giving it an “increase in holdings” rating. Risk warning: Business development falls short of expectations, and the risk of market competition is increasing.