The semi-annual report results are in line with expectations, with a substantial turnaround in the second quarter.

The company achieved revenue of 1.363 billion in the first half of 2017, down 0.97% from the same period last year, narrowing the downward trend compared with the 4.77% decline in the first quarter of 2017. The net profit belonging to listed shareholders was 1.8117 million yuan, down 80.87% from 9.4704 million yuan in the same period last year, which is in line with the forecast profit range of 500000 yuan to 5 million yuan. The decline in performance compared with the same period last year is expected. However, the main reason for the decline in semi-annual report performance is the insufficient operating rate of the smartphone industry in the off-season in the first quarter and the rise in labor costs. In addition, the sharp increase in taxes and sales fees in the first quarter of this year also weighed on the performance. In 2017, Q2 achieved a profit of 27.59 million yuan belonging to the owners of listed companies, an increase of 459.80% over the same period last year.

2017Q2 significantly reversed losses, Q3 performance is expected to be positive, optimistic about the company's performance in the second half of 2017, Q3 is expected to be attributed to shareholders of listed companies net profit of 12 million-16 million yuan, a year-on-year increase of 25.20%, 67.05%, positive guidance. As stated in our previous in-depth report, in 2013, Tian Yu and Xia Chuanwu, the former actual controllers of the company, stopped renewing the Joint Control Agreement. As of March 2017, Xia Chuanwu, as the actual controller of the company, had a shareholding of 19.55%, and the problems left over from history had been digested. By strengthening research and development and increasing investment in new businesses in 2016, the company has achieved remarkable results in its performance transformation. The gross profit margin for the whole year reached 9.83%, the highest in nearly three years. Although the industry's operating rate was weak in the first quarter of 2017 and slowly recovered in the second quarter, gross profit margin also returned to 8.55% in the context of gradual increase in operating rate, much higher than the 14-15 level. We are optimistic about the company's performance in the second half of the year.

Lock the direction of quantum dots and intelligent manufacturing platform, and actively cultivate new profit growth points. with the rise of OLED display technology, the market pays more attention to quantum dot materials with better performance, and related products begin to be introduced into the market. The company's annual report makes it clear that it will maintain its R & D investment in optoelectronic display business and speed up the accumulation and industrial application of new quantum dot material technology. In addition, the company completed a private offering of 96.8 million shares in March, raising $756 million, mainly for smart manufacturing and innovation platform construction projects. Through the construction of innovative platform, the company will enter into emerging markets such as smart wear, smart home, car networking, AR/VR, etc., and will achieve long-term binding with customers and bring technology and order resources for the company. Based on the company's long-term technology, customers and experience in 3C manufacturing and automation production, quantum dots and intelligent manufacturing platforms will become new profit growth points in the future.

Be optimistic about the development potential of intelligent manufacturing and optoelectronic industry, and maintain the rating of increasing holdings, taking into account the characteristics of the company's capabilities in the field of intelligent manufacturing and the development potential of the optoelectronic industry, the company's main business has gradually ushered in an inflection point. Maintain the previous profit forecast of 55.14 million yuan, 111 million yuan and 188 million yuan in 17-19 years. Although the short-term valuation is too high, the growth rate of the company will be high in the next three years. We believe that there are trading opportunities. From the perspective of PEG, we will give the company 59-65 times 2018 PE, corresponding to the target price of 11.21-12.35 yuan, to maintain the overweight rating.

Risk hint: the improvement of intelligent manufacturing efficiency is lower than expected, the order of intelligent hardware products is lower than expected, and the progress of optoelectronic industry is lower than expected.