Incident 1. On the evening of April 25, the company released its first-quarter performance report. The performance exceeded expectations. The company achieved operating income of 364 million yuan in the first quarter, an increase of 9.53% over the same period last year; net profit attributable to owners of the parent company was 22 million yuan, a significant increase of 200.05% over the previous year. 2. At the same time, the company announced that the initial public offering application of Yunnan Innovative New Materials Co., Ltd., a shareholding company of the company, was approved by the Issuance Review Committee of the Main Board of the China Securities Regulatory Commission. The company holds 3.4 million shares of Yunnan Innovative Materials Co., Ltd., accounting for 3.39% of the total share capital before issuance. The growth rate of the short review industry is slowing down, and the leading main business continues to recover. (1) The growth rate of the industry has further slowed. As the country's tobacco control efforts increase, the growth rate of production and sales in China's tobacco industry has clearly slowed down. In 2015, China's tobacco products industry achieved main business revenue of 935 billion yuan, a year-on-year increase of 5.50%, and a profit of 122 billion yuan, a year-on-year decrease of 1.40%; in January-January 2016, the growth rate of the industry declined further sharply. Among them, the main business revenue fell 13.10% year on year to 189.7 billion, and total profit fell 17.00% to 27.8 billion yuan. (2) Production capacity, customers, and categories drive a steady increase in company revenue against the market. In terms of production capacity, the company started the second phase of construction of the Hubei Company in 2015 to prepare production capacity for developing markets in Hunan, Hubei, Sichuan and Chongqing. By category and customer, in terms of tobacco labels, the company is currently a qualified supplier to international tobacco giants such as the British and American Tobacco Market (Singapore) and Japan Tobacco International; in terms of social packaging, the company has also achieved remarkable results in expanding packaging applications for high-end cosmetics, pharmaceuticals, alcohol, gifts, etc., with continuous accumulation of customer resources, and continuous expansion of product applications. (3) The low base effect is obvious. In the first quarter of 2015, the company's operating performance was violated by Wang Bin, Wang Zhaode, and Wang Guoyou, the partners and actual managers of Zhejiang Demei Color Printing Co., Ltd., a holding subsidiary of the company, which led to a sharp rise in Zhejiang Demei's bad debt calculation, so the net profit base for the same period last year was low (0.07 billion). Various businesses developed normally during the reporting period. In addition to the 2.25 pct increase in management expenses over the period, the sales expenses ratio and financial expense ratio decreased by 0.15 pct and 0.46 pct respectively, while gross margin increased sharply by 4.64 pct to 30.36% year over year. The recovery in performance led to a sharp increase of 200.05% in net profit over the same period last year. In addition, the company's asset impairment losses in the first quarter decreased by 232.47% year over year, mainly due to reverting to bad debt preparations calculated at the end of the previous year; investment income increased by 47.74% year over year, mainly due to an increase in investment income confirmed according to equity law accounting. Actively carry out strategic cooperation and lay out new businesses to seek growth. (1) Reached a strategic cooperation with FFP to promote the development of the new packaging materials business. The company has developed a strategic cooperation with FibreFormPackaging AB (FFP), a well-known new packaging materials development company in Sweden, and plans to exclusively operate and distribute the world's first 3D anti-counterfeiting packaging and related intelligent equipment and materials in China (including Hong Kong). In February 2016, the company signed an exclusive general distribution agreement with FFP in China (including Hong Kong) and obtained marketing and sales rights for FFP machines to produce packaging materials. The new packaging has the advantages of good environmental protection, functionality and adaptability. The implementation of the project is conducive to further promoting the development of the company's new packaging materials business, enhancing the company's core competitiveness, and helping the enterprise to achieve long-term sustainable development. (2) Mobile personalized cloud printing platforms are developing steadily. The company's entry into the wireless Internet and cloud printing markets has seen initial results. By the end of 2015, Youyin Information had completed 650,000 downloads, and the development momentum is good. Through various forms of cooperation with high-traffic platforms such as Didi Taxi, Ctrip, and Bank of China, business orders have risen steadily. In the later stages, the company will continue to cooperate with the cloud printing production side to enrich products and expand market breadth. (3) Lay out a long-term strategy for continuous growth and steady development of B2B e-commerce. Taking advantage of industry advantages, the company actively engages in B2B e-commerce. With partners, it has successively established Zhejiang Sanyu and Zhejiang Ningbo Xinshangyu Companies, built a platform for developing the China Tobacco New Business Alliance for non-tobacco ordering business, and carried out offline marketing and promotion activities. This move is conducive to enhancing the company's brand value, improving overall resource utilization efficiency, and laying the foundation for future development of e-commerce, Internet of Things, and O2O retail business platforms. (4) Promote the listing of the company's e-cigarette and cloud printing projects on the new third board. The company relies on Yuan Henry Cloud Printing and Shanghai Lvxin Electronics to develop cloud printing and e-cigarette business platforms and accelerate the listing of the project on the new third board. This move is conducive to further improving the corporate capital structure, promoting the development of enterprise standards, and at the same time encouraging the further development of the main businesses of Yuan Henry and Luxin Electronics. A fixed increase has been approved to promote outreach, and the increase in executive holdings shows confidence in development. (1) The company's fixed increase was approved. It plans to issue no more than 63.74 million shares per share at 8.16 yuan/share, raise no more than 520 million yuan, replace pre-financing funds to purchase 60% of Yuxi Printing's shares, 56% of Qujing Fu's shares, and 26% of Dali Meideng's shares. In addition, additional working capital of 156 million yuan has provided sufficient financial support and financial cost savings for the company's future main business expansion and new business development. (2) A number of senior company executives have continued to increase their holdings of the company. Among them, Mr. Guo Yi, the company's president, has increased his holdings of the company 6 times since the end of August. As of February 28, 2016, the total holdings have increased by 8.2593 million shares, the total transaction amount is 856.233 million yuan, and the average increase in holdings is 9.44 yuan/share; the continued large-scale increase in holdings shows the strong confidence of company executives in the future stable and sustainable development prospects of the company. Investment suggestions: The company's current performance has gradually recovered, the company's main business is steadily expanding in the future (customer development, industry integration and tobacco label business, while actively developing new material packaging business), epitaxial transformation and upgrading and new business (e-cigarettes, cloud printing, and joint investment with the China Tobacco New Business League to establish the “Ningbo New Business Area”) are promising; the increase in the company's executive holdings highlights the confidence and motivation for development. We expect the company's net profit in 2016-2017 to be about 220 million and 260 million, respectively, up 47% and 18% from the previous year, corresponding to EPS of 0.29 and 0.34, respectively, corresponding to 0.29 and 0.34. PE is 30 times and 26 times, respectively, and currently has a market capitalization of 6.2 billion dollars (all of the above is calculated based on the share capital of 760 million dollars after a fixed increase), maintaining the “buy” rating.