1. Incident Overview We investigated Yunyi Electric and exchanged views with company executives on the company's business development situation and strategic plans. 2. Analysis and judgment The main business advantages are obvious. After the diode expansion project is delivered, the performance is expected to increase by 88% 1) The company has customer advantages, technical advantages, and cost advantages in the intelligent power controller industry. Customer advantages: In the OEM market, the company has established stable supporting relationships with SAIC Motor Group, Guangzhou Automobile Group, Changan Ford, BAIC Group, Dongfeng Nissan, SAIC-GM, Geely, JAC, Changan, Chery, Sinotruk, Russian Lada, etc.; in the after-sales service market, the company supplies Mercedes-Benz, BMW, Audi, Buick and other high-end automobile maintenance system technical advantages: Chinese automotive rectifier, high-power diode standard setter; LIN bus regulation enterprise; Devices, only 4 companies in the world can sell in bulk Production, Yunyi Electric is one of them. Cost advantage: Invest in highly integrated IC circuits, high-power automotive diodes, and precision embedded injection parts to improve the vertical organization of the industrial chain. 2) The performance of rectifiers and regulators is stable; new diode projects are added, and the expected revenue contributes greatly to the rectifier, the regulator business is stable, and the gross profit is high. In 2015, this segment of the business had revenue of $430 million and a gross profit margin of 31.04%, an increase of 0.19% over the previous year. The diode expansion project has a construction period of 1.5 years. The planned production capacity can be reached by the end of 2017. It is estimated that it will fully achieve an average annual revenue of 584 million yuan and an average annual profit of 116.8 million yuan. The diode project is expected to increase the company's performance by 88%. “Custom Building+Acquisition” develops the NEV motor business and invests in NEV motor and control system projects. The construction period is 1.5 years, and the customer certification period is 12-18 months. The company has now entered the certification system for customers such as BAIC Motor, JAC, and Jinlong Motor. Earnings are expected to be realized starting in 2017, fully reaching an average annual revenue of 198 million yuan during the production year and a total average annual profit of 30.69 million yuan. Acquired 51% of Shanghai Lixin's shares. Established in 2011, Shanghai Lixin has R&D, testing and manufacturing capabilities for permanent magnet synchronous motors and their driver control systems. On April 27, 2016, a “Acquisition Intent” was signed with Luke Bank to acquire 51% of Shanghai Lixin Electric Technology Co., Ltd.'s shares for 172 million yuan; Shanghai Lixin promised that the net profit after tax in 2016-2018 would not be less than 1650, 286, and 41.8 million yuan. If the target company fulfilled its performance commitments and net profit after tax in 2019 and 2020 was not less than 41.8 million yuan, the company plans to acquire the remaining 49% of the shares for no more than 225.8 million yuan. An investment fund has been set up, and there is a strong expectation that the Zhuhai Guangfa Yunyi Smart Vehicle Industry Fund will be established. On December 28, 2015, Yunyi Electric signed a strategic plan with Zhuhai Guangfa Yunyi Investment Management Co., Ltd. (general partner) and Zhuhai Qianxiang Investment Management Co., Ltd. (limited partner) to establish a cooperative agreement company strategic plan to establish the Zhuhai Guangfa Yunyi Smart Vehicle Industry Fund (limited partnership). It will actively seek suitable targets and use industrial mergers and acquisitions funds and capital markets to expand the company's layout in the smart car field and new energy vehicle industry chain. 3. Profit forecasting and investment recommendations The company's main business income is determined; fixed increases have increased future earnings; the establishment of an investment fund has strong expectations of extension. EPS in 2016-2018 is expected to be 0.45, 0.59, and 0.84 yuan, respectively, corresponding to PE 60, 43, and 30 times, and for the first time coverage is given a “highly recommended” rating. Risk warning: The growth rate of the automotive industry is slowing down; fixed growth projects are falling short of expectations