The performance of key investment points is in line with expectations, and centralized contract delivery boosts profits. In the first three quarters of 2017, the company achieved operating income of 819 million yuan (+10.92% year-on-year) and net profit attributable to shareholders of listed companies of 20 million yuan (+168.31% year-on-year), achieving an EPS of 0.04 yuan. Among them, in the third quarter, the company achieved operating income of 327 million yuan (+35.99% year-on-year) and net profit attributable to shareholders of listed companies of 13 million yuan (+5975.05% year-on-year). The company's profit increased significantly in the third quarter due to two factors: the execution and delivery of the final assembly and guidance products of defense products in the second half of the year, and the losses in the previous period of Guanghua Xiaoyuan, an enterprise invested by the company, and current profit. The defense business is progressing steadily, and the company's competitiveness has an advantage. The company's defense division has three major fields: large-scale weapon system assembly integration, precise guidance and guidance, and optoelectronic information equipment. The number of large-scale weapon assemblies that integrate new weapon models under development and ready to be produced continues to increase. It has gradually moved from a single delivery to a joint development stage. Some bidding projects have gained a leading edge, and orders are expected to pick up in the second half of 2017. 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. The company's main business is optimistic for a long time. The optoelectronic device business is growing rapidly, and the optical application business chain is gradually improving. During the reporting period, Xinhuaguang Company, a subsidiary of the company, which mainly engages in the optoelectronic materials business, vigorously expanded the market, and achieved remarkable results in developing major customer resources. Currently, it has reached cooperation with many famous domestic optical technology companies. 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. Xinguanghua is also following up on the emerging optical application market, which is expected to drive the company's efficiency level to continue to improve in the future. The Group's mixed reform is progressing steadily, and the injection of high-quality assets can be expected. In January 2017, the Ordnance Group issued the “Guiding Opinions of China Ordnance Industry Corporation on Developing a Mixed Ownership Economy (Trial)”. By the end of the 13th Five-Year Plan period, the Group's asset securitization rate is expected to increase to 50%. With the announcement of the third batch of central enterprise reform pilots, the restructuring process of the arms industry group may be further accelerated. 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. Furthermore, in August of this year, the controlling shareholder, United Actors, Zhongbing Investment, increased its holdings of the company by 5.744,700 shares (1.13% of the company's total share capital) according to the plan, demonstrating recognition of the company's current value and confidence in future development. risk factors. 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. Considering that the company's defense sector assembly product revenue fell short of expectations, we lowered the company's EPS forecast for 2017/18/19 to 0.11/0.23/0.36 yuan (the original forecast was 0.23/0.32/0.39 yuan, respectively). The company's current stock price is 19.56 yuan, which is 177/87/55 times 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.