I. Overview of events

Recently, National Technology released the 2017 mid-year report: revenue in the first half of 2017 was 357 million yuan, up 21.80% from the same period last year. The net profit belonging to listed shareholders was 44.2386 million yuan, down 2.70% from the same period last year. The net profit after deduction for shareholders of listed companies was 3936.73 yuan, an increase of 8.61% over the same period last year, basic earnings per share was 0.08 yuan, and non-profit per share was 0.07 yuan.

II. Analysis and judgment

The performance in the first half of the year is in line with expectations, the external environment continues to improve, and the company is optimistic about the future growth of the company. 1. In the semi-annual performance forecast for 2017, the company is expected to return home net profit of 43 million yuan to 46 million yuan, a year-on-year change of-5.43% and 1.17%. The actual performance fell near the average. (1) the gross profit margin in the first half of the year was 29.40%, down 8.15 percentage points from the same period last year. (2) the two main business sectors: security chip products\ trade revenue increased by 15.82%\ 280.02%, revenue accounted for 79.10%\ 18.36%, and gross profit margin decreased by 5.45\ 6.29%, respectively. Among security chip products, revenue from mobile payment products was 3.4717 million yuan, down 31.17% from a year earlier, and gross profit margin was 64.22%. A year-on-year increase of 6.74 percentage points (3) Financial terminal security chip business income increased by 17.19% over the same period last year, financial IC card business income increased by 524.22% over the same period last year, and system integration business income increased by 132.31% over the same period last year. (4) the expense rate during the period was 25.44%, a decrease of 4.86 percentage points over the same period last year, of which the sales expense rate, management expense rate and financial expense rate were 8.07%, 18.48%, 18.48%, 1.11%, 0.67%, 4.67% and 0.48%, respectively.

2. The company's revenue in the second quarter was 166.8052 million yuan, an increase of 22.03% over the same period last year, and its net profit was 22.6563 million yuan, an increase of 17.14% over the same period last year. The comprehensive gross profit margin was 32.94%, down 5.46% from the same period last year, and the expense rate during the period was 27.89%, down 4.15% from the same period last year. The interim sales expense rate, management expense rate and financial expense rate were 9.66%, 19.48%, 1.25%, respectively, up 2.07%, 6.42%, and 0.20%, respectively.

3. The company's performance is basically flat, mainly because of the decline in the existing USB KEY market, the company expands the financial terminal security chip market, domestic financial IC card replacement business, while strengthening the development of system integration business to achieve year-on-year growth of sales revenue.

4. We believe that the company is a domestic leader in information security chips, with rich technology reserves in related fields, continuous expansion of revenue scale, the current external environment is continuing to improve, and the company's performance is expected to resume growth in the future.

Security chip market to maintain a leading position, optimize product structure, seize market opportunities 1. During the reporting period, the company continues to expand the financial IC card market, maintain the leading market share of domestic IC cards; optimize USBKEY products and enhance product competitiveness, while optimizing USBKEY security master control scheme with wireless network wireless transmission function, related product solutions have been introduced into customers and marketed. Improve the financial terminal security chip, security module compatibility, application security level; in trusted computing chips, strengthen development cooperation with key customers, promote trusted computing products and solutions in big data, cloud computing, Internet of things and other security applications.

2. We believe that the company is a domestic financial IC card chip and financial terminal security chip manufacturer, and the downstream market demand fluctuates. The company actively adapts to market changes through in-depth cooperation with customers and strengthening its own research and development, and its business scale will continue to expand in the future.

The independent innovation of RCC technology has become the national standard. 1. During the reporting period, the company independently developed the related technology of mobile payment based on 2.45GHz RCC (limited area communication), and officially became the national standard of mobile payment. At present, the company is combining its own innovative advantages to strengthen cooperation among all parties to promote a breakthrough in the application of RCC technology.

2. During the reporting period, the company applied for 43 domestic and foreign patents and obtained 44 domestic and foreign patent authorizations. by the end of June 2017, the company had applied for a total of 1269 domestic and foreign patents and obtained 581domestic and foreign patent authorizations. among them, mobile payment technology has been granted 413 patents at home and abroad. At the same time, the company layout smart city construction, software platform and other system integration and services. In addition, the company has also increased the research and development of new products, including Bluetooth chips, contactless reader chips and low-power MCU and wireless communication chips related to the Internet of things.

3. We believe that with the establishment of national standards, the company's RCC technology will speed up business cooperation and turn technology reserves into business performance; the company has strong R & D capabilities, and the development of the Internet of things will open up new growth points for the company.

Extension mergers and acquisitions and foreign cooperation to expand the larger market, integrate high-quality projects, layout new growth points 1. During the reporting period, the company made a series of investments and cooperation: 1) invested 13.8 million yuan, accounting for 46%. Together with Fujian Lucky big data Application Service Co., Ltd. to establish Fujian Xingmin Yifu Multi-Card Fusion Information Technology Co., Ltd. 2) sign a strategic cooperation agreement with Chongqing Xizheng Yufu Equity Investment Fund Management Co., Ltd. to jointly launch an investment fund with a total amount of 2 billion to find a suitable investment target for the company. 3) signed a cooperation agreement with Chen Yaping's technical team, intending to invest 50 million yuan to set up a joint venture company with Chen Yaping, etc., committed to the industrialization of proprietary production technology for second / third generation IC epitaxial wafers, filling the gaps in relevant national fields; 4) it is proposed to invest US $3 million in Ambiq, a leading manufacturer of ultra-low power integrated circuits in the United States, accounting for about 2.31% of the total share capital of Ambiq.

2. From a market point of view, we believe that the above cooperation will expand downstream market applications, increase the company's operating scale and create new growth points; from a technical point of view, the above cooperation will provide the company with technical support for compound semiconductor manufacturing, fill the gaps in the domestic market and lay the foundation for the company's long-term expansion.

Third, profit forecast and investment suggestions

It is estimated that the company's EPS will be 0.20,0.23 and 0.27 yuan respectively from 2017 to 2019. Based on the flexibility of the company's performance growth, it will give the company 7580 times PE in 2017, and a reasonable valuation of 15,016 yuan in the next six months.

Fourth, risk tips:

1, the downstream market demand is lower than expected; 2, the market demand changes; 3, the industry competition intensifies.