Incident: The company announced revenue of 2,983 million yuan in the first three quarters of 2017, an increase of 34.9% over the previous year; net profit of 224 million, a year-on-year decrease of 7.96%.

Comment:

1. Performance growth is lower than expected, and stable revenue growth is under pressure. The company's revenue growth rate was high in the first three quarters, but the profit decline was slightly lower than expected. The main reasons were:

Prices of raw materials have risen a lot this year, which has had a big impact on the company's product costs; the company's acquisition of Cheng Ye and the additional investment of Shuanglin this year have resulted in large expenses, which also had a certain impact on the company's profits this year; furthermore, a certain amount of money has been invested in establishing an R&D center in Shanghai this year, which mainly revolves around software and hardware technology for powertrains. We believe these major influencing factors will weaken next year, and the company's long-term growth will be determined.

2. The company acquired Shuanglin Investment and then acquired 100% of the DSI project, injecting the transmission business into the listed company and enhancing the company's product structure and competitiveness. Shuanglin Investment promised that net profit deducted for 2017, 2018, 2019, and 2020 would not be less than 170 million yuan, 252 million yuan, 343 million yuan and 412 million yuan respectively.

3. Driverless platform companies are developing steadily. The company previously announced an investment of 100 million yuan to invest in autonomous driving projects. The platform company Floritech was established on September 28, 2016, with a registered capital of RMB 500 million, with Shuanglin accounting for 20%. The platform company's business goal in 2017 is to complete the technology transfer and mastery of advanced ADAS systems overseas. The medium- to long-term goal is for ADAS to fully support Chinese OEMs and the Chinese automobile industry in five years, and strive to reach 15% of the ADAS market share of passenger cars in China within five years.

4. Profit forecast: The company's net profit for 2017 and 2018 is estimated to be 360 million yuan and 450 million yuan respectively without taking into account the additional issuance, corresponding PE being 24.56 times and 19.46 times respectively; after considering the increase, the net profit for 2017 and 2018 was 503 million yuan and 702 million yuan respectively, and the corresponding PE was 20.7 times and 15.7 times respectively.

5. Risk warning: Deyang electronic reputation impairment risk; major asset restructuring progress falls short of expectations.