Main points of investment:

The domestic market space for hardware sales of paper pattern recognition products is nearly 10 billion, and the market space for derivative services is even broader in the future. There has been an upsurge in the number of fraudulent bill fraud cases since 2011, of which 89.5% are from the one-vote multi-exchange fraud that occurred after the real bill was cloned. We assume that the annual rate of bill cloning is 0.5 to 1/1000 per thousand, which may cause a loss of 1500 to 300 billion yuan to the bank. After eight years, the company has developed a world-class first paper pattern recognition product, and the paper texture sampling and comparison technology based on real bills has been used to identify genuine tickets and fake tickets. It attracted worldwide attention when it was unveiled at the global financial exhibition in 2013. Recently, after the commercial trial stage of some banks, the function of the product is becoming more and more complete. Based on reasonable calculation, we estimate that the hardware sales space of this product in China is 37.5-7.5 billion. Moreover, we believe that the sale of stand-alone paper pattern recognition products is only the first step, and the follow-up may provide richer value-added services, such as Internet-based bank bill innovation business, and the market space for related service charges is very broad. Furthermore, the company has registered patents at home and abroad, which can be expected to be sold to overseas banking markets while meeting domestic demand.

The third generation electronic payment encoder, tens of millions of stock upgrade replacement market, new enterprise office system docking and other functional modules to serve bank customers while accumulating enterprise customers to achieve a win-win situation among the three parties. The stock of the first generation electronic payment encoder is more than 10 million, and the service cycle is more than 10 years. At present, it has entered the product upgrading cycle, and it is expected to be updated in 3 ~ 5 years. On the other hand, banks and enterprises have a strong demand for mobile solutions for bill business. The third generation electronic payment encoder (multi-function encoder) developed by the company can effectively ensure the security of bank payment to public business. at the same time, the banking business process changes from offline to online, which fundamentally improves the business service efficiency of banks. At the same time, the new enterprise service function module to simplify the tedious links of enterprise-to-public payment and reimbursement is also generally welcomed by enterprises. We believe that due to the company's absolute leading position in the previous generations of electronic payment cryptography market, the future is expected to achieve the rapid deployment of millions or even tens of millions of enterprise users through a small number of orders.

From "selling products" to "building platform + providing services", improve customer stickiness and accumulate data assets. The bank-enterprise communication platform built by the company is based on PAAS, which can build a variety of SAAS applications, including enterprise-side communication software T-letter, multi-function electronic payment codec, paper pattern recognition and so on. From one-time sales of products to uninterrupted provision of effective services to customers, customer stickiness continues to increase, and the company's profit scope and sustainability are expected to continue to break through. At the same time, the use of Bank-Enterprise Link products will accumulate effective structured transaction data on the platform, and with the continuous increase of product users, the scale of precipitated data will increase greatly. The proliferation services that can be derived from massive data assets will have a bright future.

First coverage, given a "buy" rating, the first target price of 43.4 yuan. The market capitalization is expected to reach 100 billion in five years. Based on the prediction that the new product orders will cover 100000 bank outlets within five years, the EPS from 2015 to 2017 is expected to be 0.12,0.72,1.16 yuan respectively, corresponding to dynamic price-to-earnings ratios of 235,39,24.

Core hypothetical risk hints: sales of paper pattern recognition products and third-generation electronic payment encoder products are lower than expected.