Matters: Weihong Co., Ltd. released the 2017 semi-annual report performance forecast. The company expects to achieve net profit attributable to shareholders of listed companies of 37.042 million yuan, an increase of 37%-57% over the previous year. Main views 1. The company's performance grew steadily, and investment income was the icing on the cake. During the reporting period, the company expects net profit attributable to shareholders of listed companies to rise 37%-7% year-on-year. The main reasons are: the company actively explores the market, various tasks are progressing smoothly, and the performance growth trend is stable; the company has carried out securities investment and bank management, and the profit and loss of changes in fair value and investment income increased over the same period last year, which had a positive impact on net profit. 2. The company is expected to be the first to benefit from the continuous development of CNC machine tools in China, and has now entered the structural shift upgrade period. Market demand is developing in the direction of automation, complete and customized customization. In particular, the impetus of Industry 4.0 and China Intelligent Manufacturing 2025 has made China's machine tool industry show a flourishing growth trend in the future. The company is one of the few domestic companies that has mastered the motion controller CNC system and servo driver technology at the same time. The company takes “professionalism, concentration and focus” as the core business philosophy, takes motion control system products as the core, takes R&D and market as the guide, makes full use of the technological research and development capabilities, market influence, product popularity and other advantages accumulated over the years in the industry to improve overall scale efficiency, improve product quality, and increase the share of the company's products. The company's performance is expected to continue to grow. 3. It is proposed to establish a wholly-owned subsidiary to promote long-term good business development. In order to promote the long-term good development of the company's business, taking into account the company's overall strategic layout and business development needs, it is proposed to establish a wholly-owned subsidiary “Shanghai Weihong Automation Technology Co., Ltd.” with a registered capital of 5 million yuan. The subsidiary is engaged in intelligent technology, calculation development, calculation services, etc. in the fields of mechanical and electrical technology, as well as import and export business of goods and technology. This investment will revolve around the company's main business, which will have a positive impact on the company's long-term development and corporate efficiency, and is in line with the direction of the company's strategic development. It is conducive to further restructuring the company's product structure, improving the industrial chain, improving economic efficiency, and enhancing the company's competitiveness. 4. Investment suggestions: The company's net profit for 17-19 is estimated to be 66 million yuan, 93 million yuan, 119 million yuan, and 119 million yuan. The corresponding EPS is 1.16 yuan, 1.63 yuan, and 2.10 yuan, and the corresponding PE is 43X, 31X, and 24X. Maintain recommendation ratings. 5. Risk warning: Market competition intensifies and gross margin decreases.