1. Incident Yunyi Electric released its 2015 annual report on April 22. The company achieved annual revenue of 432 million yuan, an increase of 0.19% over the previous year. Net profit attributable to shareholders of listed companies was 706.765 million yuan, a year-on-year decrease of 14.04%, after deducting net profit of 568.666 million yuan, a year-on-year decrease of 17.31%, and basic earnings per share of 0.35 yuan. The company also released a quarterly report. In the first quarter, it achieved revenue of 126 million yuan, an increase of 12.95% year on year, and net profit of 245.324 million yuan, an increase of 30.54% year on year. 2. Our analysis and judgment (1) Main business grew steadily, gross margin remained high, main business revenue remained stable for 15 years, and the recovery in performance in the first quarter was in line with expectations. In 2015, the company achieved revenue of 432 million yuan, an increase of 0.19% over the previous year. Among them, rectifier revenue was 214 million yuan, down 3.37% year on year, accounting for 49.5% of total revenue; regulator revenue was 182 million yuan, up 5.26% year on year, accounting for 42.26% of total revenue. Affected by the slowdown in industry growth and the company's increased investment in R&D, the company's net profit attributable to the company's shareholders in 2015 was 706.765 million yuan, a year-on-year decrease of 14.04%. The steady growth in downstream demand in the industry in the first quarter led to a steady recovery in the company's main business. At the same time, with the gradual release of production capacity in the company's fund-raising projects, the company increased its market development efforts and broadened the supply system in the domestic joint venture brand new car market. In the first quarter, the company's main business grew steadily, achieving revenue of 126 million yuan, up 12.95% year on year, and net profit of 245.324 million yuan, up 30.54% year on year. In addition, the cash flow situation of downstream customers improved in the first quarter, the company's ability to repay became stronger, and asset impairment losses decreased by 46.67% compared to the same period last year. Judging from the company's performance in the first quarter, the company's operating capacity continued to improve, and it is expected that the results will improve significantly in 2016. The vertical integration of the industrial chain strengthens technological advantages to control costs, and maintains a high level of gross margin. The company realizes internal support for key components through vertical integration of the industrial chain, greatly reducing procurement costs and maintaining high profitability. In recent years, the company's gross margin has remained above 30%, ranking among the top in the auto parts industry. The company's gross margin in 2015 was 31.05%, up 0.28% year on year. Among them, the gross profit margin of rectifiers was 31.79%, up 0.26% year on year, and the gross profit margin of regulators was 33.16%, up 0.93% year on year. We believe that with the gradual release of production capacity for high-power automotive diodes, the company's technical advantages in the field of key components will gradually be highlighted, cost control capabilities will continue to improve, and the industry's high gross margin level will continue to be maintained. (2) Future highlights will continue, and rapid growth in performance can be expected to support the steady progress of the high-end customer process to accelerate import substitution to seize market share. In 2015, the company accelerated import substitution, joint venture brand support, and high-end independent brand support processes. In the OEM market, it has established stable supporting relationships with SAIC Motor Group, Guangzhou Automobile Group, Changan Ford, BAIC Group, Dongfeng Nissan, SAIC-GM, Geely Automobile, JAC, Changan Automobile, Chery Automobile, and Sinotruk; in the after-sales service market, products have also been stably supplied to high-end automobile maintenance systems such as Mercedes-Benz, BMW, Audi, and Buick. In the future, the company will rely on its strong competitive advantage to further expand its domestic market share and gradually replace its main business, intelligent power controllers and their key components, high-power diodes for automobiles. The production capacity of high-power automotive diode projects is gradually being released, and large-scale releases are expected to drive rapid growth in the company's performance in '16 and '17. The company's current production capacity for high-power diodes has achieved 100% internal support, which fully meets the company's own needs. The additional 230 million units of production capacity added to the fund-raising project will all be used for export sales. With the gradual release of production capacity in fund-raising projects and the gradual completion of international customer certification, the company's high-power automotive diode business will enter the large-scale deployment stage, which is expected to drive rapid growth in the company's performance in the second half of the year. Strategically lay out the field of automotive intelligence and the field of new energy vehicles, and optimize the product structure to achieve a new round of growth. In line with the global trend of intelligent electronic control development, the company is increasing investment in intelligent electronic control businesses such as smart wiper motor control systems and smart fan motor control systems, and continuously optimizing the product structure. It is expected that as the product penetration rate increases, the market space will be further opened up to realize the transformation of the company from a second-tier supplier to a first-tier supplier. At the same time, the company raised 120 million dollars to enter new energy power systems. After the production line is completed, it will have a production capacity of 36,000 sets of motors and control systems for new energy vehicles per year. Expanding the company's layout in the new energy vehicle electronics industry will help the company achieve leapfrog development, form new profit growth points, drive the company's performance improvement, and promote the company's transformation and upgrading. 3. Investment recommendations maintain the recommended rating. The company's main business has maintained steady growth, and the operating conditions have improved. At the same time, we are actively developing customers and speeding up the layout of new businesses. Furthermore, as fund-raising projects gradually reach production and new projects are gradually implemented, the company will usher in an inflection point in performance. Furthermore, the company has never had any mergers and acquisitions since its listing, and the momentum for future expansion is strong. We expect the company's EPS in 2016-2017 to be 0.59, 0.82, and 0.97 yuan respectively. Considering the company's business growth and the average valuation of automotive electronics 45X, the reasonable valuation range is 26.55 yuan. Active attention is recommended. 4. Risk factors 1) The growth rate of passenger cars was lower than expected due to the economic impact; 2) The production progress of the company's fund-raising project was lower than expected