Investment highlights Company news: The company disclosed the report for the first quarter of 2016. Sales revenue increased by 29.64 million yuan year on year to 157 million yuan, gross margin level was 36.8%, up 2.1 percentage points year on year, net profit attributable to parent company shareholders was 26.13 million yuan, up 156.71% year on year, and earnings per share were 0.05 yuan, up 150.00% year on year. Comment: Financial payment terminals and residents' health card chips drive revenue growth: The main reason for the significant increase in the company's revenue in the first quarter of 2016 was a significant increase in shipments of financial terminal security chips and modules. USBKEY security master control chip products based on mobile networks continued to be promoted and tested in some commercial banks. At the same time, the continued localization of financial IC card chip products has also contributed to the company's business growth. Among them, both consumer health card chip shipments and revenue have increased markedly. The bank card side is closely following commercial banks' pilot card issuance projects, strengthening cooperation mechanisms for non-card merchants, and preparing for large-scale entry of bank financial IC card products into the market. Short-term challenges in the RCC business do not change long-term potential: the industrial base of RCC technology and the construction of the market environment are not yet perfect, leading to a year-on-year decline in the company's RCC sales revenue, but in the long run, as a technical standard with independent property rights and national recognition, it conforms to the development strategy of national information security in the field of financial security. As the company continues to promote the implementation of relevant standards and successfully sort out benchmark projects, it has the potential to become the company's future performance growth. The operating expenses ratio continued to be effectively controlled: In the first quarter of 2016, the company's sales expense ratio and management expense ratio levels fell 2.1 and 14.8 percentage points year-on-year, respectively, to 9.7% and 20.8%. The company continued to focus on the main information security business, strictly controlled management expenses, and adjusted the strategic implementation of product development projects with poor efficiency and continued to reap benefits. The net profit margin brought about by this reached 16.7%, gradually approaching the average level of the industry. Investment advice: We forecast the company's earnings per share from 2016 to 2018 to be $0.20, $0.27, and $0.34, respectively. The return on net assets was 3.96%, 5.03%, and 6.02%, respectively. An increase in holdings-B was recommended. The six-month target price was 22.25 yuan, which is equivalent to the dynamic price-earnings ratios of 111.3, 83.0, and 65.0 times from 2016 to 2018. Risk warning: The pace of development and marketing of new products and solutions falls short of expectations; increased market competition affects the company's profitability.