Events:

The company released its first-half report on the evening of the 17th: the company's total revenue in the first half of the year was 574 million yuan, an increase of 25.30% over the same period last year, and the net profit attributed to shareholders of listed companies was 102 million yuan, an increase of 1748.59% over the same period last year.

The company also issued performance guidelines for the first three quarters of 2017: it is expected to achieve a net profit of 1.47-153 million yuan. An increase of 553.75-580.43% over the same period last year.

Main points of investment:

The answer to this semi-annual report is basically the same as the forecast in early July, but we still see a lot of points in the details.

First of all, the industry began in the second half of last year, as Taiwan shut down more production capacity brought about by the prosperity of the company this round of performance recovery does provide a good background, but it is worth emphasizing that not all LED upstream chip enterprises have successfully seized the overall recovery of this round of market, the only outstanding performance of these well-prepared manufacturers. In recent years, while stabilizing the advanced advantages in the field of red and yellow light, Qianzhao has also made a lot of investment in the field of blue and green light chips. after the third or fourth quarter of last year, it gradually began to form a scale effect, and successfully got out of the trough of declining performance in the previous two years. Back to the fast track of strong growth.

Secondly, it was noted that in the semi-annual report, the company mentioned that the operating income of non-main business (LED business other than epitaxial wafers and chips) was only 10.98 million yuan, down 91.54% from the same period last year. This is mainly due to the company's strategic policy of deepening the main business, adjusting and shutting down other LED businesses whose performance can never be improved, and disposing of related inventory and machinery and equipment. The rapid adjustment of the lossmaking business shows the company's outstanding execution, as mentioned in our previous report: under the premise that the company is gradually focusing on the main chip business and shrinking non-profit projects, 2017 is the year of recovery that fully reflects the company's profitability. Although the contraction of non-profit business is not purely related to profits, but this kind of full implementation and not dragging its feet, is very commendable.

Third, the company successfully completed the second phase of the employee stock ownership plan in the first half of the year, and this time there are more participants in the employee stock ownership plan, which basically covers the vast majority of the core backbone of the company, realizing the sharing of interests between the company and employees, attracting and retaining more excellent employees, and better promoting the coordinated development of the company and employees. The importance of the employee stock ownership plan for a growing company like Qianzhao is self-evident, which is an important reason why we are optimistic about the company's later growth.

Fourth, the scale effect will continue to ferment: this year's performance growth is undoubtedly the inevitable result of the gradual increase in blue and green and the rapid response of various departments to market changes and the rapid expansion of sales scale. the completion of process upgrading and industrial upgrading. We believe that the scale effect and the addition effect of blue, green, red and yellow actually have room to deepen (for example, matching supply in small spacing areas, large-scale branches can also form sales, improve the overall efficiency of the application, and so on). Therefore, we believe that there is still room for further improvement in the company's gross margin of 36.23% during the reporting period. And after the Nanchang production expansion project is gradually increased in the year after next year, this detail will be further revealed.

Fifth, the chemical reaction between Hejun and the company is very outstanding. After Hejun joined the company, due to the erroneous influence of "market capitalization management is backdoor or theme asset injection" caused by more mergers and acquisitions in the market in the past two years, many investors hold some misinterpretations about the combination of Hejun and Qianzhao. With the rapid growth of this year, the management of the company has thoroughly proved the good combination between Hejun and the company, and what the market is worried about, misread and hesitant has been cleanly transformed into bright marketing data. we think that we should face up to the integration of industrial capital such as Hejun with the company, and that many excellent companies abroad have similar shareholder structure, which is one of the important manifestations of the progress and development of China's capital market. It deserves the attention of investors.

Profit forecast and investment rating: overall, Qianzhao, as the leader of the domestic red and yellow LED chip, opened up the market quickly with excellent upstream and downstream channels, good enterprise management methods and the east wind of the industry recovery, and realized the continuous improvement of the profitability of the main industry after successfully cutting into the blue and green field. We estimate that the company will achieve net profit of 2.24,2.73 and 388 million yuan in 2017-2019, corresponding to 23.6,16.6 times of PE28.7 in 2017-2019. Be optimistic about the company's continued growth in the next three years and maintain the company's buy rating.

Risk tips: 1) the risk of a decline in chip prices; 2) the company's product sales are not as expected.