I. Overview of events

Recently, we conducted a survey of the company and exchanged views with senior executives on the business situation and development direction.

II. Analysis and judgment

Advance layout of artificial intelligence, intelligent voice and image recognition products are expected to speed up

1. The company's intelligent image recognition and synthesis product services mainly include urban intelligent transportation products based on automatic vehicle recognition, 3D face cameras and automatic face recognition products, and intelligent real-time interactive virtual reality products.

2. Urban intelligent transportation: from 2002 to 2007, the company was in the leading position in the country in the four bidding tests of the Beijing Olympic intelligent transportation project, and the industry was in the forefront of the country. Since 2015, the company has begun to develop intelligent recognition technology based on the new generation of artificial intelligence deep learning, which has achieved an excellent recognition accuracy of 99.60% in the test of millions of vehicles in the practical environment.

3. 3D face camera and automatic face recognition: in November 2015, the company conducted a directional additional issue, and one of the fund-raising projects is the research and development of high-precision 3D face camera and automatic face recognition products, with a planned development period of three years. At present, major breakthroughs have been made and economic benefits have begun to be achieved. Especially the newly developed small high-precision 3D face camera, its volume and cost are similar to those of similar foreign products, but the measurement accuracy is several times higher, which has reached the international leading level. Product landing: face recognition products and services work well in the student dormitory of Beijing normal University. The witness ticket verification system has been tested at Chengdu Railway Station for a year and a half. It is expected that the Chengdu Railway Station project will formally sign the contract early next year, and it is expected to be rolled out to the main train stations under the Chengdu Railway Bureau in the future.

4. Intelligent virtual reality products: this product service is developed on the basis of virtual reality products, which is mainly used in interactive experience and science popularization. Its characteristic is that the system can automatically identify the gestures and movements of the audience. The roles in the program can interact with the audience under the command of the audience gesture to enhance the added value of the original products.

5. We believe that the company has laid out the field of artificial intelligence in advance and combined with the original application business to carry out new product research and development, which is progressing smoothly, and some of the products have been tried out in Sichuan and Chongqing with remarkable results. With the acceleration of investment in the field of public safety, the market share of the business sector is expected to increase, and the landing process of products is expected to accelerate, opening up new profit growth points for the company.

The leader in the field of air traffic control, who has significantly benefited from the integration of the army and the people.

1. The company is the leader in the field of air traffic control, and the market share of products and services is in the forefront. Air traffic management (ATC) business includes providing air traffic control automation system, simulation training system, flow management system, airspace management system, air traffic control meteorological management system, multi-channel digital synchronous recorder and other products for military and civil aviation users (including air force, navy, land aviation, AVIC industry) and civil aviation users. The business model of air traffic control business is to customize the development of large-scale special software according to the needs of users, form a complete set of systems with complete functions through system integration, put them into use at the user site, and undertake follow-up maintenance or upgrade services. During the 13th five-year Plan period, the overall investment scale of domestic air traffic control system is expected to reach tens of billions of yuan; as one of the major domestic air traffic control products and service suppliers, the company's market share in the military aviation field is as high as 70%. The market share in the civil aviation field accounts for about 30%, and the market share ranks first among domestic manufacturers.

2. Intelligent voice is applied in the field of air traffic control to create an automatic air traffic control system SAE3.0. In 2016, the company passed the "proposal on developing a new generation of automated air traffic control system based on artificial intelligence to catch up with and surpass the national advanced level", which is mainly committed to realizing automated air traffic control from SAE0.0 to SAE3.0, which can change "human command in the first line" into "machine command and manual supervision". Controller supervision is in the position of second-line supervision, and the workload is relatively reduced. The company has set up a special team to develop "automatic air traffic control command" key technologies "real-time identification, understanding, decision-making and response of control calls", which has made a breakthrough. In the next step, the company will assist European companies in promoting decision support systems such as AMAN, DMAN and collaborative flow management in China, while independently developing a new generation of intelligent decision-making system based on big data and deep learning, and developing a "regulated instructor robot" in preparation for the development of air traffic control robot.

3. The integration between the army and the people has been deepened again, and "people joining the army" has significantly benefited. On September 22, 2017, the second plenary meeting of the Central military and Civil Integration and Development Committee decided to deepen the demonstration of the airspace management system reform plan. we will promote nationwide three innovative initiatives: the integration and sharing of large-scale military and civilian scientific research instruments and equipment, the innovative cooperation of dual-use technology alliances linked by equity, and the identification and access standards of core military products for civilian enterprises.

4. We believe that the company has significant advantages in the field of air traffic control, and is in a leading position in the field of military navigation. As the pure target of civil participation in the army, it will significantly benefit from deepening the reform of civil-military integration in the future. And with the reform and development of the low-altitude field of civil aviation, the application of artificial intelligence technology will enhance the competitiveness of products and services, and the market share will gradually expand.

It is proposed to launch an equity incentive plan to rally the hearts of the people and promote the long-term development of the company. The company recently launched a 2017 stock option incentive plan (draft), which intends to grant 8 million restricted shares to the incentive target, accounting for 3.55% of the company's total share capital of 225.626095 million shares. The grant price of restricted stock is 24.01 yuan, and the unlocking condition is that the net profit of 2017-2020 is not less than 15%, 32.5%, 52.09% and 74.90% higher than that of 2016. We believe that the implementation of the equity incentive program will help to unite the business backbone and core technical personnel of the company. in addition to the traditional channels for introducing outstanding talents from Sichuan University, we will vigorously absorb outstanding external R & D personnel, speed up the landing progress of products and services, and promote the long-term, rapid and healthy development of the company.

Third, profit forecast and investment suggestions

It is estimated that the company's EPS from 2017 to 2019 is 0.23,0.27 and 0.31 yuan respectively, and the current stock price is corresponding to PE of 112x, 93x and 83x, respectively. We believe that the company has a solid leading position in the air traffic control business, and the automated air traffic control system product SAE3.0 with embedded speech recognition technology is expected to be launched next year, which will help to greatly improve the profitability of traditional business; the company's face recognition products continue to land in Chengdu railway station and colleges and universities, and is expected to extend to public safety areas such as subway stations; virtual reality products are gradually mature, and the layout of new business continues to be improved. Based on the above analysis of the company's business, and we continue to be optimistic about the application of artificial intelligence in the field of pan-security, we give the company 115,120 times PE in 2017, corresponding to the future stock price of 26.45-27.6 yuan, maintaining the company's "cautious recommendation" rating.

Fourth, risk tips:

The policy promotion is not as expected; the technology research and development is not as expected; the landing speed of product application is slow.