Key investment performance was in line with expectations, and revenue declined slightly due to factors such as military product structure and delivery cycle. In the first half of 2017, the company achieved operating income of 492 million yuan (-1.19% year-on-year) and net profit attributable to shareholders of listed companies of 7.4543 million yuan (+0.51% year-on-year), achieving an EPS of 0.01 yuan. The company's revenue declined slightly, mainly because assembly and guidance products in the defense business, which accounted for a relatively large share of operating income, were delivered in the second half of the year. Defense sector: The three major fields go hand in hand, and the market space is vast. The company's defense sector is developing steadily in the three major fields, and the future market is broad. In the first half of the year, the company's large-scale weapon system assembly and integration business continued to increase, and the number of weapon models being developed and prepared for delivery continued to increase, and it has gradually moved from single delivery to the stage of joint development. The precision guidance guide business is full of ordering tasks, and has realized technological innovation and model expansion for last-guided artillery shells of different ballistic diameters, laser-guided missiles, guided bombs, and rocket bombs for different launch platforms, and successfully expanded the field of application of leading military forces. While maintaining the competitiveness of existing products, the field of optoelectronic information equipment has determined the development tasks and intentions of a number of aviation projects. Optoelectronic equipment and devices: Business development is improving steadily, and optical applications are improving competitiveness. During the reporting period, the company's optical materials and device products achieved main business revenue of 263 million yuan, an increase of nearly 30% over the previous year, and overall business development showed a steady upward trend. In the first half of 2017, the company successfully developed and tested fluorophosphorus glass. The market response was good, and demand showed a rapid growth trend. The production and sales volume of infrared chalkali glass is at the forefront of the country. It has begun to do business with many international companies, and is also used in weapons and equipment such as gun targets in the field of national defense and military use. At the same time, the company actively lays out and improves the upstream and downstream business chains, further consolidates the company's advantages in the infrared materials market, explores the application market for chalkali glass, and enhances business competitiveness. The institutional restructuring plan is about to break the ice, and expectations for arms group reform are rising. In January 2017, the Ordnance Group issued the “Guiding Opinions of China Ordnance Industry Corporation on the Development of a Mixed Ownership Economy (Trial)”, which put forward 26 relevant opinions and decided to promote the development of a mixed ownership economy by group companies. Combining the acceleration of asset securitization of the National Defense Military Industry Group and further support for the restructuring policies of research institutes, it is expected that the asset securitization of the Ordnance Group and the integration of Optoelectronics Co., Ltd. as a platform for the optoelectronic information industry will accelerate further. We expect that the company's expectations as an optoelectronic information business platform for the North Optoelectronics Group and the weapons industry as a whole will increase. It may inject high-quality assets under the North Optoelectronics Group in the future, and is expected to become a comprehensive listing platform for sub-groups such as Laser and Night Vision. Risk warning. The profit growth rate for military and civilian goods fell short of expectations; the timing and content of asset injection were uncertain, etc. Earnings forecasts, valuations and investment ratings. We maintain the company's 2017/18/19 EPS forecast of 0.23/0.32/0.39 yuan, respectively. The company's current stock price is 19.35 yuan, which is 84/60/50 times the PE corresponding to 2017/18/19, respectively. Considering the gradual deepening of the reform of the Ordnance Industry Group, the possibility of the company as an integrated platform for optoelectronic information products is increasing, and considering only the asset injection expectations of the North Optoelectronics Group, it maintains an “increase in holdings” rating, with a target price of 21.5 yuan.