Matters:

The company announced its 2017 mid-year report on August 17. The company achieved operating income of 181 million yuan in the first half of the year, an increase of 131.71% over the previous year, and the net profit of the mother was 20.37 million yuan, turning a loss into a profit over the previous year. The basic earnings per share were 0.0849 yuan.

At the same time, the company issued an announcement on foreign investment. Full Technology, a holding subsidiary of the company, invested RMB 5 million of its own capital to establish FuFandao Technology, which specializes in radio frequency chips. Recently, Buffandao Technology completed commercial registration and obtained a business license.

Key Views

1. The combined contribution of military and civilian goods to net profit was a sharp increase. Investment income contributed 181 million yuan to net profit. The company achieved operating income of 181 million yuan in the first half of the year, an increase of 131.71% over the previous year, and the net profit of the mother was 20.37 million yuan, turning a loss over the previous year into a profit. Among operating revenue, the military portable air defense missile command system achieved revenue of 70.66 million yuan, an increase of 5267.95% over the previous year. Civilian goods, including communication components of the subsidiary Huayang Communications, foreign trade, civil radar, etc., achieved revenue of 111 million yuan, an increase of 65.29% over the previous year. The company's military and civilian goods jointly led to a sharp increase in overall revenue in the first half of the year.

In terms of profit, in addition to making a profit by selling products, the company also achieved investment income of 23.56 million yuan by selling some of the shares of the participating company Smart Microelectronics and investing in wealth management products, which contributed greatly to the company's net profit.

2. The military goods business received many orders in the first half of the year. The traditional military business of the company, which is doing well, is a series of portable air defense missile command system products. In the first half of the year, the company actively developed military integration and supporting services, strived to improve the intelligent performance of existing products, actively participated in domestic military procurement competition, and obtained purchase orders from various domestic and foreign military companies -- it was announced on February 27 that Military Trade Company A signed procurement contracts worth 23.99 million yuan for the “TH-BS08 integrated ground reconnaissance system”, “TH-R315 ground surveillance radar and related accessories”, March On the 29th, it was announced that a procurement contract worth 41.5 million yuan was signed with a military department for the “TH-S711 portable surface-air missile operation command system”, the “TH-S711M radar and allegation system inspection and maintenance vehicle, and the equipment supporting the allegation system.” In the first half of the year, the company achieved military goods business revenue of 70.66 million yuan, a year-on-year growth rate of 5267.95%. We believe that the company has been deeply involved in the field of anti-aircraft missile command systems for many years, has a first-mover advantage in military products business and has established long-term cooperative relationships with customers, and can maintain steady growth in the military products business in the future.

3. Actively improve the business layout in the five major sectors through foreign investment

Since 2016, the company has actively expanded its business field through foreign investment. In the first half of this year, the company continued to improve its business layout by setting up subsidiaries: it was announced on May 18 that it will jointly invest 100 million yuan with Sichuan Yifeng to establish a joint venture, Xi'an Tianyi Terahertz Electronics, which specializes in terahertz security systems and millimeter-wave infrared composite detection systems. Listed companies have invested 51 million, holding 51% of the shares; it was announced on July 14 that it plans to invest 40 million yuan to establish Tianhe Innovation Institute as an incubation platform for the company's innovative technology; on July 31, it was announced that it would invest 40 million yuan to establish Tianhe Innovation Institute as an incubation platform for the company's innovative technology; on July 31, it was announced that it would invest 100 million yuan to establish the holding subsidiary Tianhe and Haipang It invested 20 million yuan to establish Zhejiang Haina, a wholly-owned subsidiary, which specializes in underwater platforms and detection sensors; on August 17, it was announced that the holding subsidiary, Full Technology, invested 5 million yuan of its own capital to establish FuFandao Technology, which specializes in RF chips. Currently, the company's business development focuses on the five major sectors of “military equipment, integrated electronics, intelligent security, intelligent coastal defense, and communication electronics”. We believe that the business direction currently laid out by the company has good prospects for development, and it is expected that new profit growth points will be formed in the future.

4. Investment advice

We believe that the company's traditional military goods business, the portable air defense missile command system, is operating well and can maintain steady growth. The new businesses in the fields of military electronics and intelligent coastal defense laid out since 2016 are expected to form new profit growth points in the future. Overall, we are optimistic about the company's development prospects.

5. Risk warning

The progress of military product development and delivery fell short of expectations; new business expansion fell short of expectations; the ban on the original shareholders' restricted shares was lifted in September 2017.