Main points of investment:

Domestic coal mine safety monitoring leader, the extension into the military industry and semiconductor field. The company is mainly engaged in the development, production and sales of coal mine safety monitoring equipment and power production monitoring equipment, and is a leading supplier in the field of domestic coal mine safety monitoring equipment and systems. The company insists on endogenous growth as the support and extension integration as the leverage development strategy. In recent years, the coal industry has remained in the doldrums. On the one hand, the company has increased the development of new products for coal mine safety, on the other hand, it has actively expanded to other industries. Among them, in 2016, it acquired a 70% stake in British Loadpoint with its own funds, extending the product line to the field of semiconductor precision processing and manufacturing. In July 2017, it completed the acquisition of Changshu Asia, successfully cut into the field of military industry, and realized the transformation of military-civilian integration. According to the performance forecast, the company achieved a net profit of 1602.23-18.9354 million yuan in the first half of 2017, an increase of 10% over the same period last year.

Military business: acquisition of Changshu Yabang, the most important supplier in the field of military engineering equipment. At present, Changshu Yabang is the main supplier of electric control system and training simulator for military engineering equipment (pontoon bridge) in China. the main products include type 4 pontoon bridge equipment electric control system and type 2 pontoon bridge training simulator. Large-scale sales are formed, and the gross profit margin is high. In addition, it also participates in several engineering equipment research projects, and will be responsible for production and matching after being finalized. Changshu Yabang has cooperated with professional scientific research institutions of military engineering equipment for a long time in the past and is a supplier of related core components of its electronic control system. In the second half of 2015, because the relevant scientific research institutes were no longer engaged in for-profit business, Changshu Asia was stereotyped and the products under research were transferred to the relevant general assembly units, including Huazhou emergency (which also led to the rapid growth of its business income in 2016).

After the completion of the acquisition, Changshu Asia promised to deduct the non-return net profit of not less than 15 million yuan, 17.75 million yuan and 19.75 million yuan in 2017, 2018 and 2019, respectively. The pontoon bridge plays an important role in ensuring the military action and determining the first opportunity in the battlefield. At present, the western military powers have replaced the military pontoon bridge one after another to enhance the overall support capability. In addition, the pontoon bridge has also received great attention in the army, armed police and local transportation combat readiness departments. According to the prospectus, in the future, with the increasing requirements of the war for the army to carry out traffic engineering support and logistics support capabilities, as well as the increase in non-war military operations, the demand for boat bridges and supporting products will continue to increase. Changshu Asia will continue to benefit from performance growth.

Semiconductor processing business: acquire Loadpoint Company and strive to seize the huge business opportunities for microelectronic device manufacturing in China's Asia-Pacific region. The company completed the acquisition of 70 per cent of Loadpoint in 2016 and plans to acquire 70 per cent of Loadpoint Bearings in 2017. Loadpoint is mainly used for R & D, production and sales of precision processing equipment for semiconductors and other microelectronic devices. The main products are high-precision, high-reliability slicing and cutting equipment for semiconductors and other microelectronic devices, which are mainly sold in Europe and North America, and can be used in semiconductor manufacturing enterprises, aerospace and other fields. Loadpoint Bearings is the core component supplier and competitor supplier of Loadpoint products. In recent years, the microelectronics manufacturing industry has become a national industry. According to the "outline for the Development and Promotion of the National Integrated Circuit Industry" and "made in China 2025", China's investment in the semiconductor manufacturing industry will reach 150 billion US dollars in the future, expanding the domestic market share of domestic integrated circuits from 9 per cent to 70 per cent by 2025. At present, imported equipment occupies a monopoly position in the field of semiconductor device manufacturing. Precision slicing and cutting of semiconductor device matrix is one of the key processes in the manufacture of semiconductor devices. after the acquisition of Loadpoint, the company will strive to seize considerable business opportunities in China and Asia.

Coal mine, electric power safety monitoring business: the domestic coal mine safety monitoring field leader, constantly increase the intensity of new product development. The company is the leader in the field of domestic coal mine safety monitoring equipment and systems, and the downstream customers are mainly large and medium-sized state-owned coal mining enterprises. The company leads the industry in independent innovation, technological research and development and the transformation of scientific and technological achievements, and the coal mine gas extraction monitoring products, dust monitoring and control products have obvious competitive advantages and strong pricing power. With its excellent industry position, the company's main performance is better than that of similar listed companies. At present, under the control of the depressed environment of the downstream coal industry, the company will strengthen the development of new coal mine safety products, create new demand, broaden the coverage of the product line, and consolidate the leading edge in the field. In addition, in recent years, with the ultra-low emission of thermal power plants has become a general trend, the demand for power production monitoring products and flue gas monitoring products began to grow. The company further extends the technical application platform of coal mine safety monitoring products to electric power and other industries, and puts into the market new products used in flue gas monitoring in the electricity market. According to the Investor activity record Table, the company will further strengthen the research and development and marketing of new electric power products in the future.

The first phase of equity incentive unlocking has been completed, and the second and third phase unlocking conditions continue to promote the performance development of the company. The company carries out an equity incentive plan in 2016 (the total number of people awarded is 59, including senior managers, middle managers, core team members, etc., corresponding to the current number and price of 1612931 shares and 11.51 yuan per share, respectively). The restricted stock will be unlocked by annual performance appraisal from 2016 to 2018, and the annual unlocking condition will be based on the company's performance in 2015. The growth rate of net profit is not less than 20%, 50% and 70%. In April 2017, the company successfully completed the first unlock period conditions. We believe that the second and third unlocking periods will continue to fully mobilize the enthusiasm of the company's managers and core team members, combine the interests of shareholders, the company's interests and the personal interests of operators, and promote the performance of the company.

Profit forecast and investment advice. It is estimated that the EPS in 2017-19 will be 0.21,0.26,0.31 yuan respectively. Combined with the comparable company's average PE in 2017 and the company's business growth, the company will be valued at 82 times PE in 2017, corresponding to the target price of 17.22 yuan, with a "buy" rating.

Risk hint. (1) the uncertainty of the development of military business; (2) the semiconductor market is not as expected; (3) the cyclical risk of civil product market.