1. Event Overview Recently, the company released the 2017 semi-annual report: the first half of 2017 achieved revenue of 440 million yuan, an increase of 297.5% over the previous year; net profit of 36.5 million yuan, an increase of 138.3% over the previous year; net profit after deduction of 35.326 million yuan, an increase of 216.8% over the previous year; and basic earnings per share of 0.37 yuan, an increase of 86.3% over the previous year. 2. Analysis and judgment, the two horse-drawn carriages of security and communications drove revenue performance growth 1, 1) The second quarter's revenue of 317 million was up 157.7% from the first quarter; 2) Construction in progress increased 71.64% year on year, and inventory increased 451.1% year on year, mainly due to increased business volume and new projects started; 3) Operating costs increased 321.6% year on year, mainly due to a decline in overall gross margin; 4) Sales expenses increased 138.3% year on year, an increase of less than revenue growth; 5) Management expenses increased by 68.3% year on year, mainly 0.21% year on year The business increased investment in R&D, and R&D investment increased by 211%; 6) Financial expenses were reduced from -187,000 in the same period last year to -294,000 due to fiscal interest rate discounts. 2. 1) Overall gross margin decreased by 4.65% due to the increase in the share of equipment sales; 2) Security system service revenue was 327 million, an increase of 761.3% over the previous year, and gross margin increased by 2.3%, driven by increased industry demand. 4) Communications network service revenue was 66.27 million, down 6% year on year, and gross margin down 5.3%; 5) Equipment sales revenue was 46.67 million, up 10827% year on year, and gross margin decreased 32%. We believe that industry dividends are expected to spawn an explosion in the company's security business, and that downstream demand for company security will continue to be strong in the future. The company's overall business situation is improving, and market share driven by orders will continue to increase, laying the foundation for the company's high performance growth throughout the year. Based in Xinjiang, the communications security business ushered in a peak era 1. As a participant, the company pre-won the bid for the Qimei County security project. The estimated total investment of the project was 387 million yuan, operation and maintenance expenses were 17.32 million yuan/year, and the franchise period was 10 years (including 1 year of construction). 2. Information technology services have strong geographical characteristics, and there are large differences in demand and actual application in various regions. Relying on strong localization service advantages and industry experience accumulated in a complex and diverse business environment, the company maintains long-term and stable cooperative relationships with customers in the region, digs deep into local business, and continuously enhances market competitiveness. 3. As an established local communication service provider in Xinjiang, the company has system integration and security qualifications, and has always ranked in the top three of the top ten system integration enterprises in Xinjiang. Beginning in 2016, with the surge in demand in the security market in Xinjiang, Leon Technology's security business surpassed the communication business. In 2017, the fixed asset investment in Xinjiang reached 1.5 trillion yuan, an increase of 50% over the previous year, and the investment in network informatization construction reached more than 10 billion yuan. Investments have led to an increase in the security industry. In addition, demand for stability in Xinjiang is very strong, so there is huge room for regional security demand. 4. The projects currently being carried out by the company include: Altay region, Tacheng region, the border between China and Kazakhstan, and Kunlun Mountain in Kerzhou; the information technology base station operation and maintenance project in Yili and Bole; and the long-term cooperative telecom operator system integration operation and maintenance service project. All projects are progressing smoothly, and some representative projects are expected to be inspected by the end of the year. These projects will become the benchmark for security projects in Xinjiang as a whole. The company that continues to implement the “northwest wolf” strategy is currently actively implementing the “northwest wolf” strategy: based in Xinjiang, backed by northern China and Guangzhou, and moving towards Central Asia. With the construction of the Belt and Road Initiative, the company made full use of its historical advantages, developed businesses such as NB-IoT and other related application platform expansion, and participated in and deepened into the construction of informatization in Central Asian countries. The company will utilize the market it has previously owned to integrate communication and security to comprehensively promote the construction of “three-dimensional” security, that is, from terminals to transmission to computer rooms to data collection to AR data analysis, and participate in the construction of smart cities in Xinjiang. We believe that in the future, the company is expected to participate deeply in telecom construction and operation in Central Asian countries, and that there is huge room for innovative applications. 3. Profit Forecast and Investment Recommendations The Company's 2017-2019 EPS is expected to be 0.69, 1.06, and 1.64 yuan respectively, and the corresponding PE is 47.3X, 30.8X, and 20X respectively. Since the company's business has high growth potential, the company is given a reasonable valuation range of 55-60 times within the next 12 months. The corresponding stock price is 38-41.4 yuan, and it continues to be given a “highly recommended” rating. 4. Risk warning 1) Competition is intensifying, and the pace of order execution is slow; 2) Investment in security information technology in Xinjiang falls short of expectations.