1. Incident Overview On the evening of October 25, Zhengye Technology released its 2017 three-quarter report: From January to September 2017, the company achieved revenue of 904 million yuan, an increase of 130.79% over the previous year, and achieved net profit attributable to listed shareholders of 1425.655 billion yuan, an increase of 265.65% over the previous year, equivalent to EPS of 0.76 yuan. 2. Analysis and judgment. The results of the three-quarter report are in line with expectations. Demand from the downstream industry is strong, and the subsidiary is operating well 1. (1) The company's interim report estimates: Net profit attributable to shareholders of listed companies for the first three quarters was 136.9346 million yuan to 142.6472 million yuan, an increase of about 252.21% to 265.86% over the previous year. Actual performance is close to the upper limit of expectations. (2) The comprehensive gross margin was 38.70%, an increase of 0.41 percentage points over the previous year. (3) The cost rate for the period was 19.32%, a year-on-year decrease of 9.87 percentage points. The sales expense ratio, management expense ratio, and financial expense ratio were 6.06%/12.98%/0.28%, respectively, a decrease of 0.69/8.71/0.46 percentage points, respectively. 2. (1) Revenue for the third quarter of 2017 was 361 million yuan, up 125.78% year on year, and net profit to mother was 608.53 million yuan, up 219.57% year on year, equivalent to EPS of 0.32 yuan. (2) The comprehensive gross margin was 40.20%, up 1.81 percentage points from the previous year. (3) The expense ratio for the period was 18.46%, down 9.92 percentage points from the previous year. Among them, the sales expense rate/management expense ratio/financial expense ratio were 5.37%/12.77%/0.32%, respectively, down 1.37/8.35/0.21 percentage points, respectively. 3. The main reasons for the increase in the company's performance: 1) the company's intelligent equipment and new material technology are being upgraded, and market competitiveness continues to increase; 2) the lithium battery industry continues to improve, the sales scale of the lithium battery testing equipment business continues to expand, and sales revenue is growing steadily; 3) The wholly-owned subsidiaries Jiyin Technology, Peng Yuwei, and Xuanshuo Intelligent Manufacturing are doing well, and the new holding subsidiaries Zhengye Jiukun have joined the list. 4. The integration of epitaxial mergers and acquisitions went smoothly, and the synergy effects of various subsidiaries in terms of technology, customers, and products were further evident: Tuolian Electronics broke through the power pole technology for power batteries and shipped; Jiyin Technology successfully expanded the LCD module automated production equipment market in China; Peng Yuwei's automated welding equipment achieved major breakthroughs in elevators, compressors, etc., with significant performance growth; Xuanshuo Optoelectronics benefited from the continuous expansion of domestic LED packaging production and the rise of the landscape lighting market. Demand from downstream lithium batteries, PCBs, LCD modules, LED lighting and other industries continues to improve, the company's equipment and material manufacturing will continue to expand, and performance is expected to continue to grow at a high rate. The trend of localizing smart equipment manufacturing, FPC materials, benefiting devices and FPC raw materials 1. With the advent of a full-screen trend in the smartphone industry, the OLED penetration rate will continue to increase, and the demand for high-end screen modules will continue to increase, and related smart device manufacturing is expected to continue to benefit; demand for lithium battery capacity for electric vehicles is growing rapidly, consumer electronics is developing in the direction of high added value such as fast charging and high capacity, and the demand for equipment from lithium battery manufacturers will continue to expand; as China's new urbanization progresses, elevator usage and penetration rate will further increase, and demand for equipment is expected to continue expansion. 2. This fixed increase will solve the company's production capacity bottlenecks in the fields of liquid crystal displays, lithium batteries, elevators, etc., further enrich product types, optimize and upgrade products, and meet the one-stop procurement needs of downstream customers. The intelligent equipment manufacturing project is expected to bring an average annual revenue of 608 million yuan and net profit of 126 million yuan after delivery, and the FPC project will bring an average annual revenue of 380 million yuan and net profit of 42.73 million yuan after delivery. 3. Profit forecasting and investment suggestions benefit from the rapid development of domestic PCBs, lithium-ion batteries, LED, LCD, OLED and other fields. High-end equipment has advantages such as high cost performance and local service, and an increase in the localization rate of equipment will drive high performance growth. The company's EPS from 2017 to 2019 is expected to be 1.20 yuan, 2.49 yuan, and 3.61 yuan respectively. Based on the elasticity of the company's performance growth, the company will be given 20 to 25 times PE in 2018, and a reasonable valuation of 49.8 to 62.25 yuan over the next 12 months will maintain the company's “Highly Recommended” rating. 4. Risk warning: 1. Development of new products is slow; 2. Progress in fixed growth falls short of expectations; 3. Development of LED and OLED falls short of expectations.