1. Overview of the incident Recently, the company released its 2017 semi-annual report. The first half of the year achieved operating income of 563 million yuan, an increase of 42.13% year on year; net profit to mother was 57.168 million yuan, up 65.82% year on year; net profit after deduction was 54.64 million yuan, up 62.23% year on year. The basic EPS was 0.29 yuan, an increase of 54.1% year on year. 2. Analysis and judgment. Performance grew rapidly. The early layout effect showed 1. 1) Operating costs of 379 million yuan, an increase of 36.27% over the previous year, and an increase in gross margin. 2) Sales/management expenses were 17.36 million/78.32 million, respectively, up 10.77%/48.68% year-on-year. 3) Financial expenses were 17.63 million, up 92.97% year on year, mainly due to an increase in exchange losses; 4) R&D investment was 44.757 million, an increase of 169.1% year on year, mainly increased R&D investment and company mergers. 2. The main reasons for the increase in net profit are: 1) The company's product structure was adjusted to the middle and high-end and new front-end projects were supplied one after another, which improved the company's performance. The front-end market has high technical requirements. Only automotive terminal companies with strong comprehensive strength can participate, and the customer is highly sticky and the gross margin is high. The company will have great potential in the future. 3. The company continues to implement multi-product penetration strategies to accelerate the penetration rate of new products such as front-mounted ADAS, LCD instruments, and HUD. In the aftermarket, we open up new markets through cooperation with Internet companies such as Tencent and new marketing models. At the same time, expand the commercial vehicle market and UBI market. In overseas business, through collaboration with Sanflag Communications and Inca Technology, we continue to deepen the development of overseas connected car services such as smart buses and online car-hailing, while continuing to dig deeper into the original overseas front-end business, and penetrate the products in many places. 4. Accelerate the integration of R&D technology forces, continue to introduce advanced management concepts such as SLPS, introduce outstanding talents in the industry, and strengthen skills training. Integrate the R&D capabilities of Sanflag Communications and Inca Technology to enhance R&D efficiency and product results conversion rate. In terms of product planning and research and development, the company continues to insist on multi-line development of products such as autonomous driving, smart cockpit, vehicle networking applications, and smart transportation. Vehicle networking products include HMI, OBD, T-BOX, 4S point customer value-added management, new energy vehicle networking systems, etc. We believe that future performance is expected to continue to grow rapidly with the launch of the company's front-mounted and intelligent cockpit products and the further development of the Internet of Vehicles and commercial vehicle markets. Expanded mergers and acquisitions have effectively broadened product lines and markets 1. The company's new mergers and acquisitions (Sanflag and Inca) have consolidated financial statements since the second quarter, improving the company's performance. The company has achieved a comprehensive layout in the field of vehicle networking through mergers and acquisitions, has the ability to provide complete solutions for different scenarios, and has further strengthened its position in the field of vehicle networking and smart transportation. 2. In early August, the company acquired 95% of Hangsheng Industrial's shares for 142.5 million yuan, further consolidating the company's leading edge in the commercial vehicle front assembly market. Hangsheng has a market share of about 20% in the commercial vehicle front assembly market. Through this merger and acquisition, the company will use Hangsheng's channel advantages to further expand its market in the four major fields of automotive audio-visual electronic systems, safety systems, control systems, and information service platforms. We believe that the synergy between the company's epitaxial mergers and acquisitions and main business is obvious. As future strategies are further developed, the intelligent driving and connected car business is expected to be further enriched. The rapid development of smart cars continues to help the company's performance. The Internet of vehicles, intelligent transportation, autonomous driving, etc. are one of the important elements of the “Made in China 2025” and “Internet +” development strategies. On the basis of the continuous improvement of national intelligent driving-related policies and regulations and the continuous development of technology in the future, China's intelligent driving market will usher in a period of explosion. The “smart cockpit” is the core technology for making cars intelligent and driverless. We believe that in recent years, the company's R&D investment in intelligent cockpits has increased year by year, and various technologies and products are competitive in the market. It is foreseeable that in the future, the company will continue to benefit from the rapid development of smart cars, and future performance is guaranteed. 3. Profit forecast and investment recommendations The company's 2017-2019 EPS is expected to be 0.42, 0.59 and 0.87 yuan, respectively, and PE is 40.7X, 29.3X and 19.9X, respectively. Considering that the company's future business will usher in an explosion period, we have given a valuation range of 50-55 times over the next 12 months, and the corresponding stock price is 21-23.1 yuan, continuing to give it a “highly recommended” rating. 4. Risk warning: 1) The integration of mergers and acquisitions did not meet expectations; 2) The smart cockpit business did not meet expectations.