Key investment points: The red and yellow chip leaders accumulated in history have set sail again. In the field of red and yellow LED epitaxial films and chips, the company is one of the largest domestic producers. Its packaged products can be used in many fields such as displays, infrared security, electronic equipment indicators, traffic lights, night scene engineering, vehicle lighting, etc.; Red and yellow LED is also the main business that the company has been sticking to since its establishment. It is one of the largest producers of high-brightness four-element red and yellow LED chips in China, and has deep technical reserves. Introduce strategic cooperative shareholders to achieve a smooth change in the shares of some shareholders. In 2016, the company officially introduced a new strategic shareholder and Jun Zhengde. Hejun has extremely rich theoretical accumulation and practical experience in management improvement, efficiency improvement and capital operation, which helps to clarify the company's future strategy, forward-looking development, and achieve a new round of leapfrog development. LED chips are benefiting from the downstream display explosion. The LED downstream market is huge, and quaternary LED chips are mainly driven by displays. Red and yellow light chips are a niche market, since blue light chips with fluorescent powder technology have already been used in the field of lighting and backlighting. Red and yellow light is more commonly used in the field of display. At the same time, driven by emerging markets such as small spacing, downstream demand for red and yellow light chips will further increase. Commercial expansion and cost reduction will actively promote small spacing, and demand for red and yellow LED chips is expected to increase dramatically. Along with the high demand for the downstream display industry, the elasticity of the entire red and yellow light chip to grow from a small base will be very obvious. The process of increasing growth in the industry. It is expected that future competition for red and yellow chips will mainly revolve around several larger manufacturers planning to expand production. Leading companies with original vested advantages and long-term strategic vision will significantly benefit from this wave of industry development. Chip production capacity is speeding up, and employee shareholding brings confidence. The company launched a total of two employee stock ownership plans, reflecting the company's confidence and determination to work together and seek common development. On March 21, 2016, the purchase of the first phase of the employee stock ownership plan was completed. The total purchase of the company's shares accounted for 1.52% of the company's total share capital. The total transaction amount was about 63.638 million yuan, and the average transaction price was about 5.94 yuan/share. In this employee stock ownership plan, 6 people, including directors, supervisors, and executives, held 26% of the total share, while other ordinary employees accounted for 62% of the total shareholding share, etc., and another 12% was used as a reserved share. CAGR = 46.73% in the next two years, leading the small but beautiful segment. We expect that in 2017/2018/2019, the company will achieve net profit of 183 million yuan/278 million yuan/394 million yuan. The CAGR will reach 46.73% in the next 2 years, and the corresponding EPS will be 0.26 yuan/0.39 yuan/0.56 yuan. The company's industry uses San'an Optoelectronics, Huacan Optoelectronics, Dehao Runda, and Aoyang Shunchang as valuation comparisons. The 2018 PE level was about 19 times. Considering the company's high growth performance, a PE valuation of 25 times was given. The target market value of the corresponding company was about 7 billion dollars. Referring to the PEG valuation, assuming the company's reasonable PEG = 1, the company's market value is about 8.6 billion. Combining the two valuation methods, the company conservatively valued about 7 billion dollars and gave it a buying rating. Risk warning: declining LED chip prices, sluggish downstream demand market.