Event: 1. The company released its 17-year annual report. In 2017, it achieved revenue of 773 million yuan, an increase of 18.10% over the previous year, and realized net profit of 191 million yuan, an increase of 15.30% over the previous year. 2. The company released its performance forecast for the first quarter of '18, and is expected to achieve net profit of 406.834 to 457.689 million yuan, a year-on-year decrease of 10-20%. 3. Huaqing Ruida, a wholly-owned subsidiary, terminated the acquisition of 55% of Shenzhou Airlines shares. Military electronics business: Ongoing orders increased 55% year over year, and a new round of growth may begin in 2018. The increase in military electronics business performance in '17 mainly came from Information Analysis Technology. In September '16, Xun Analysis Technology merged to enter Ruida, Huaqing. In '17, the military electronics business achieved revenue of 148 million yuan, an increase of 37% over the previous year; net profit was 59.35 million yuan, an increase of 44% over the previous year. According to the performance promise to complete the announcement, the non-net profit deducted by Huaqing Ruida headquarters (excluding Xun Analysis Technology) in 15-17 was 3,552, 3176, and 35.85 million yuan respectively. Although growth resumed in 17, the overall growth rate was not high, only 12.9%. It is estimated that Xunxi Technology will achieve net profit of more than 23 million yuan in '17, making a major contribution to Huaqing Ruida's overall performance growth. Ongoing orders in the first quarter of '18 increased 55% year over year. Although the military electronics business declined 70-85% in the first quarter of '18 compared to the same period last year, we believe that the main reason is that, apart from the fact that some orders continue to be affected by military reform and that military orders are mainly delivered in the second half of the year, the scale of the company's military electronics business is gradually expanding and is capable of handling larger orders, but the corresponding delivery confirmation period for revenue is relatively long. Through 17 years of active deployment, the company has vigorously expanded the market for electronic warfare, electronic reconnaissance, and imported alternative high-end equipment, and as the impact of military reform gradually weakens, current orders in hand have increased by 54.81% year-on-year over year to 107 million yuan, laying a good foundation for subsequent growth. A new round of endogenous growth may begin in '18. In '17, the company's electromagnetic spectrum security business pioneered customers such as Huaihai Industrial Group and Sichuang Electronics, etc., and its market share was further expanded; some avionics module products were transferred to mass production; high-speed communication products initially realized the industrial chain layout of military communications, electronic investigation and other markets; artificial intelligence cognitive electronic warfare simulation system principle prototypes and terahertz test technology projects have successfully completed development and delivery to customers; while developing the civilian market, it has achieved a breakthrough into the military market, and has received a prototype order from a key military unit. We expect that with the gradual elimination of the impact of military reform in 2018, it may bring greater flexibility to the performance of the military electronics business, and considering that the entire military vigorously promotes practical training, as the electromagnetic spectrum safety business such as the company's radar target simulators, ATE radio frequency excitation sources, and military products such as high-speed signal processing and avionics modules are gradually standardized and installed, the company's various models of supporting products will strive to enter the mass production stage, and the military electronics business is expected to usher in a new round of endogenous growth. Use military technology to actively expand the civilian market. ① High-speed signal processing platform products are actively expanding the civil communications market. Their main competitor is the BeeCube series of US National Instruments. ② The University of Technology, Lei Xin, and the Ukrainian Academy of Technology have jointly developed a single-frequency continuous wave ground-penetrating radar, and has received project support from the Shenzhen Municipal Government. Subsequent prototyping products will first be used in fields such as underground cavity detection and landslide warning. ③ In '17, Huaqing Ruida completed the development and delivery of the principle prototype of the 24GHz automotive radar simulator, and subsequent derivative models are in the process of being developed. Refrigerator compressor components: Variable frequency controllers and mini PTC starters contribute major increases. In 2017, the company's refrigerator compressor parts business achieved revenue of 625 million yuan, accounting for 81%, an increase of 14.43% over the previous year; realized net profit of about 132 million yuan, accounting for 69%. Among them: ① Variable frequency controllers achieved revenue of 151 million yuan, up 71.26% year on year, accounting for 24.13% of the refrigerator compressor parts business; inverter refrigerator sales increased 83.56% year on year in 2017, accounting for 17% of refrigerator sales; ② mini PTC starters achieved revenue of 52 million yuan, an increase of 27.42% over the previous year; and the share of energy-saving products such as inverter controllers and mini PTC gradually increased and became a major growth point. For other parts businesses, revenue growth rates in 2016 and 17 were 1.02% and 3.36% respectively. Considering the overall single-digit growth in the refrigerator industry and as inverter controllers and mini PTCs gradually replace traditional PTC products, it is expected that other parts businesses may decline slightly. Future growth will still mainly depend on the inverter and mini PTC starter business. Driven by favorable factors such as the implementation of the new version of the national energy efficiency standard policy, the popularity of inverter technology in the market, and significant trends in energy saving materials, etc., the company's mini PTC starter and inverter controller are core components of high-end energy-saving refrigerators and inverter refrigerators. Market demand has risen sharply and their share has gradually increased, and the company's products have shown structural changes. The company has now completed the production capacity construction of the inverter controller production line. In the first quarter of '18, the company's refrigerator compressor parts business increased 10-25% year-on-year, and the inverter controller and mini PTC starters continued to grow rapidly. We expect the company's traditional main business as a whole to maintain steady growth, with a growth rate of around 15%, providing strong support for the company's subsequent transformation into the military electronics sector. Investment suggestions: We believe that the company not only maintains steady growth in its traditional main business due to new energy efficiency standards and product structure optimization, etc., but also continues to increase its military electronics business layout. It will benefit from the construction of national defense informatization, the gradual elimination of the impact of military reform, and the continuous refinement and release of new products. The military electronics business may usher in a new round of endogenous growth; the acquisition of the University of Technology and Lei Xing has added overall radar business to the core equipment field. According to the company's military electronics business performance and order situation in the first quarter of '18, considering that delivery of some orders continued to be affected by military reform and that there is uncertainty about the delivery cycle, the profit of the military electronics business was slightly revised, and the previous performance forecast was basically maintained. We expect net profit for 2018 and 19 to be 230 million yuan and 282 million yuan respectively, EPS to be 0.53 and 0.65 yuan respectively, and PE corresponding to the current stock price to be 27 and 22 times, respectively, maintaining the “buy-A” rating. Risk warning: Performance growth, extended mergers and acquisitions, internal integration, etc. fell short of expectations.