Key investment points: The aerospace business has grown dramatically, helping the company's performance explode. In the first half of 2017, Xinyan Co., Ltd. achieved operating income of 488 million yuan, an increase of 86.58% over the previous year; net profit to mother was 0.91 billion yuan, an increase of 402.15% over the previous year. The gross margin was 41.20%, an increase of 3.81 percentage points over the same period in 2016. Earnings per share were 0.06 yuan/share. The increase in performance mainly comes from the aerospace business, which achieved revenue of 436 million yuan in the first half of the year, an increase of 222.91%; gross margin was 44.24%, slightly lower than the same period in 2016, and net profit of 104 million yuan. The subsidiary Aerospace will accelerate its expansion tomorrow, consolidating the company's competitive advantage in the aerospace field. Tomorrow, Aerospace is positioned as the back garden of China's aerospace industry. With the main business of providing supporting services for structural parts and components of various military models in service and under development in China, and using the “small core and big collaboration” of state-owned enterprises as an opportunity to seek project connections, it has now invested in the construction of industrial parks in Hebei, Shenyang, Chengdu, Guizhou, and Tianjin. At the same time, the company also set up an international business department to develop business cooperation with the world's top aircraft and aviation development companies such as COMAC, Boeing, Airbus, Commercial Development, and GE to expand the civil aviation market. In addition, the company also completed the capital increase for Lu Chen New Materials, which accounted for 22.82% of the company's registered capital after the capital increase. We are optimistic about tomorrow's aerospace development prospects in the aerospace field. There are three main reasons: first, rising demand for aerospace supporting products combined with strategic development opportunities brought by the national strategy of military and civilian integration; second, the company's reserves of talent, technology and production capacity (manufacturing platform system composed of more than 400 production, monitoring, and assembly units); third, the company has good cooperation and supporting relationships with many aerospace companies, and has now signed strategic cooperation agreements with OEMs such as Shen Fei and Guifei. The agricultural machinery business is showing a downward trend due to various factors hampering it. The agricultural machinery industry has entered a period of deep adjustment due to multiple factors such as falling grain prices, rising costs of upgrading from country 2 to country 3, reduction in subsidy amounts, and large quantities of agricultural machinery removed from stock in 2016, which led to a decrease in farmers' willingness to buy. Industry statistics show that in the first five months of 2017, sales of self-propelled grain harvesters were 21,000 units, down 21.8% year on year, while sales of self-propelled corn harvesters were 0.19 million units, down 55.9% year on year. The company's agricultural machinery business revenue in the first half of the year was 21 million yuan, down 81.62% year on year, and gross margin was 20.92%. The company is coping with the decline in the industry by reducing staff and increasing efficiency, setting up production through sales, and contracting outsourced machining services. The second phase of the employee stock ownership plan completed the stock purchase. Xinyan Co., Ltd. launched the second phase of the employee stock ownership plan in December 2016. The total capital raised was 200 million yuan to fully subscribe for the general share of the trust plan. The maximum size of the trust plan is 600 million yuan. The participants in this employee stock ownership plan are some of the company's directors, supervisors, and executives (a total of 5 people, with an investment of 60 million yuan) and core and key employees of listed companies and subsidiaries. As of June 16, 2017, the employee's shareholding plan had purchased a total of 36.8018 million shares of the company's shares, with an average transaction price of 15.64 yuan/share. The lockdown period is 12 months. Profit forecasting and valuation. We expect the EPS of Xinyan Co., Ltd. from 2017 to 2019 will be 0.29 yuan/share, 0.41 yuan/share, and 0.51 yuan/share. Taking into account the company's technical advantages and industrial layout in the aerospace field, and based on the valuation situation of comparable companies, we gave the company a PE valuation of 55 times in 2017, with a corresponding target price of 15.95 yuan, maintaining the risk warning of the “increase in wealth” rating. There is a risk of impairment of goodwill; accounts receivable are high; policy adjustments adversely affect the agricultural business, and there is still a risk that the company's agricultural machinery business performance will decline; aerospace business expansion falls short of market expectations.