1. Incident Overview On the evening of July 10, 2017, the company issued an announcement: The company's net profit for the first half year of 2017 is expected to be about 150 million yuan, an increase of about 360% over the previous year. Zhejiang Land Zongheng Network Technology Co., Ltd. (hereinafter referred to as “Rand Network”), a new third-board listed company invested by the company, completed additional sales during this reporting period, generating an investment income of about 109 million yuan. 2. Analyze and judge that the reported performance exceeded expectations. I am optimistic about the company's future development potential. Rand Network is an enterprise whose main business development direction is providing enterprise information systems, telecom core support application systems, and value-added service systems. It is one of the top five software industry companies in Zhejiang Province. After deducting income from investment in RAND Zongheng ($109 million), the company's net profit for the first half of the year was 41 million yuan, an increase of 25.3% over the same period last year. In the last year, Huasheng's cloud-based solutions (especially hybrid heterogeneous clouds) have been recognized by the market. Revenue from products such as servers and middleware has made major breakthroughs. Hundreds of companies have adopted Huasheng Tiancheng's small computers, databases and other products. We believe that in the long run, the company's level of mastery of core technology will improve, medium- to long-term product performance will be more outstanding, and future performance can be expected. The majority shareholders increased their holdings, showing confidence that the majority shareholders expect to increase their holdings by about 3%-6% of the total market value. The implementation period is within the next 12 months from May 25, 2017. The capital comes from the majority shareholders' own funds and self-raised funds. We believe that on the one hand, increasing holdings will help strengthen the majority shareholders' ability to control the company. On the other hand, it is also a sign of long-term optimism about the company's development, demonstrating confidence in the company's future development. The acquisition of GD was successful, and the company, which deepened its international layout, completed the Grid Dynamics (GD) merger and acquisition settlement in April of this year, and spent US$118 million to obtain 100% control. GD is an IT service company located in the US. It specializes in providing innovative and key cloud solutions for retail, financial and technology companies, and currently serves the largest department stores and top IT companies in the US (from: GD's official website). GD is a high-quality target with high growth and high profit margins. In 2015, revenue was 39.73 million US dollars, a growth rate of 30.9%, and profit before interest and tax was 8.82 million US dollars, a growth rate of 335%. GD promises to complete a profit of US$15 million within 12 months of delivery and US$20 million of profit before interest and tax within 12-24 months (from: Company Announcement). We believe that the acquisition of GD not only boosted the company's performance, but also gained huge strategic advantages in technology sharing and market sharing. It plans to participate in Zhongtian Antai. The company with significant synergy will participate in 10% of Zhongtian Antai's shares with 30 million yuan in cash. It signed an equity transfer agreement with Zhongtian Antai on May 17, 2017. Zhongtian Antai has core technology in “data black holes” and “reactive platforms”, as well as related products and application practices. The company's investment in Zhongtian Antai will help expand and improve the company's strategic layout in the fields of information security, autonomy and control, cultivate new business growth points, and help the company and Zhongtian Antai exert synergy in key industries such as cloud computing security and IoT security. Lay out the Internet of Things and participate in the growth of high-quality companies. Companies participate in M&A funds with no more than 590 million yuan of their own capital. The fund plans to acquire 82.7471% of Tailing Microelectronics's shares for $1.86 billion, and has signed an equity transfer agreement with Tailing on April 11, 2017 (Source: Company Announcement). Tailin Microelectronics was named one of the most popular emerging semiconductor companies in the world by the EE Times in 2016, and was once the only chip design company invested by Intel. Tailin has independently developed intellectual property rights for all modules in its SoC chips. Through an innovative system architecture, Tailing has greatly optimized the design of system-level chips and achieved highly integrated, high-performance, and low-cost solutions (from: Tailing Microelectronics official website). We believe that the company has successfully entered the IoT field through fund holding Tailing, which will help the company seize IoT market opportunities. 3. Profit forecast and investment recommendations We expect the company's operating income in 2017-2019 to be 6.37 billion, 8.25 billion, 10.07 billion, and net profit of 213 million, 282 million, and 331 million yuan, respectively. The corresponding EPS is 0.19, 0.25, and 0.3 million yuan, respectively. According to the company's current stock price, PE is 46X, 34.8X, and 29.6X, respectively. We believe that the company's reasonable valuation range in 2017 is 55-60 times, and the corresponding reasonable valuation is 10.5-11.4 yuan, and continues to give it a “highly recommended” rating. 4. Risk warning: 1) The acquisition company falls short of expectations; 2) the acquisition company's customer concentration is high; 3) major technical risks; 4) the growth sector falls short of expectations.