Key investment points The main business continued to decline, and performance fell short of expectations. According to the company's performance report, the estimated revenue for 2017 was 1,652 billion yuan, down 16.59% year on year, net profit attributable to shareholders of listed companies was 198 million yuan, down 36.08% year on year; and EPS was 0.17 yuan, down 45.16% year on year. During the reporting period, the prices of some upstream raw materials in the company's set-top box business rose sharply, leading to a decline in the gross margin of related products. The company paid dividends and increased share capital last year. As a result of the expansion of share capital, EPS declined faster than net profit of the parent. Set-top box business: Raw materials may continue to be high in price. Strengthening operations is expected to improve profitability. The prices of raw materials such as DDR memory chips, FLASH flash memory chips, PCB circuit boards, and steel plates for the company's set-top boxes have increased dramatically. Due to the imbalance between supply and demand, the price of semiconductor raw materials has increased significantly. The new production capacity of major manufacturers is mainly concentrated after the second half of 2018, and short-term raw materials may remain high. The company will improve business operations by adjusting prices to operators, optimizing the industrial structure, and reducing production costs. We expect that through these measures, the profitability of the set-top box business will gradually improve. New energy vehicle business: A new subsidy policy has been implemented, and rapid development can be expected. On February 13, the four ministries and commissions jointly issued the “Notice on Adjusting and Improving the Financial Subsidy Policy for the Promotion and Application of New Energy Vehicles”. Compared with the original subsidy standard, the new standard raised the subsidy threshold and set February 11 to June 11 as a transition period between the old and the new standards. In the short term, the establishment of a transition period is conducive to the concentrated release of demand in the first half of this year; in the long run, the tightening of subsidies is conducive to orderly competition in the NEV industry. The company actively lays out new product research and development work, and plans to use the capital raised to build a product development center and production base. The business continues to improve. Smart mechatronics business: Production capacity is steadily rising, and development prospects are broad. The business conditions of Fujian Junpeng and Tongzhi Mechatronics, two major offline subsidiaries of the company's smart mechatronics business, stabilized. Among them, Fujian Junpeng has entered full production since May of this year, and the newly invested TEU production line has also been officially put into operation. Relying on technological research and development advantages in intelligent power systems, intelligent power distribution systems, and intelligent manufacturing, as well as extensive military customer resources, the company is expected to further improve its market competitiveness. In the future, it is hoped that it will benefit fully from the continuous deepening of the intelligent transformation of weapons and equipment and the continuous development of the civil automobile mechanical and electrical parts market. Capital operations have been strengthened, and the company's R&D capabilities have been enhanced. Faced with adverse market competition factors, it is expected that the company will actively carry out capital operations, enhance R&D capabilities and optimize product structure, improve incentive mechanisms, and enhance the company's profitability. The company has invested 353 million yuan in capital, mainly for research and development of military intelligent mechanical and electrical products and new energy vehicle components. In addition, the company repurchased some shares for employee shareholding and equity incentives. The share repurchase was completed on February 6, totaling 29 million shares, with a total amount of 200 million yuan. Subsequent capital operations can be expected. risk factors. The performance of the digital set-top box market declined; military orders fell; and the prosperity of the NEV industry fell short of expectations. Earnings forecasts, valuations and investment ratings. Considering the continued decline in the set-top box business, we lowered the company's 2017/18/19 EPS forecast to 0.17/0.23/0.28 yuan (the original forecast was 0.24/0.30/0.36 yuan). The current price is 7.12 yuan, which is 41/31/25 times PE corresponding to 2017/18/19, respectively. Considering the development prospects of the company's military business and the NEV business layout, maintain the company's “buy” rating, with a target price of 9 yuan.