[Investment Highlights] The company released its 2017 annual report. According to the announcement, in 2017, the company achieved operating income of 773 million yuan, YOY +18.10%; net profit of 191 million yuan, YOY +15.30%, and performance growth was relatively steady. The company achieved operating income of 199 million yuan, YOY +0.51%; net profit of 51 million yuan, YOY -12.07% in the 2017 Q4. In addition, the company's profit distribution plan is to distribute cash dividends of 1.50 yuan (tax included) to all shareholders for every 10 shares, for a total of RMB 65 million. The refrigerator compressor spare parts business is growing steadily. In 2017, the company's home appliance business revenue reached 625 million yuan, YOY +14.43%, and gross margin remained around 34%. Market demand for core components such as the company's PTC and non-power starters (total), intake silencers, and variable frequency controllers surged during the reporting period due to the increase in the penetration rate of the air-cooled refrigeration model and the further promotion of the new national standard policy for refrigerator energy efficiency. The company achieved sales volume of 3835/3937/2,210,000 units respectively during the reporting period. According to offline monitoring data from Aowei Cloud Network (AVC), as of September 2017, the penetration rate of inverter refrigerators in China was only 69.6%, far lower than washing machines (80.7%) and air conditioners (78%); currently, China's inverter refrigerator market share is only about 10%. According to the requirements of China's household appliance refrigerator industry technology roadmap, the market share of inverter refrigerators will reach 50% by 2025, so there is room for growth. At present, the company's market share of starters and silencers exceeds 25%, and the market share of inverter controllers has reached 17.40%. With the rapid growth of the downstream refrigerator inverter market and the continuous expansion of compressor manufacturer customers, the company is expected to further increase its market share with leading advantages. The military electronics business is expanding at an accelerated pace. In 2017, the company's military business development entered the fast track, with revenue reaching 148 million yuan, YOY +36.54%, and CAGR +34.35%. High-tech barriers have increased gross profit, and the military business's gross profit remained at a high level of 69.28% in '17. The company's traditional radar simulation business developed rapidly during the reporting period, with a market share of over 30%. Information Analysis Technology, which was wholly acquired in 2016, enabled the original radar radio frequency simulation business and the newly expanded national defense informatization business to form a synergistic effect to increase the volume of military business. By the end of 2017, Huaqing Ruida's non-net profit for the 15, 16, and 17 years had reached 3551.92/3176.02/358.53 million yuan respectively, with a total non-net profit of 103.307 million yuan, exceeding its performance commitment; Xundisi Technology achieved a total net profit of 305.737 million yuan in 2016 and 17, exceeding its performance commitment by 101.937 million yuan. In December '17, the company acquired Leixin of the University of Technology with 40% equity to improve the entire “land, sea, air and sky” industry chain, which is conducive to building a complete closed-loop product line with Huaqing Ruida and strengthening the joint effect. Radar target simulators received major orders from Huaihai during the reporting period, and new customers in new categories such as satellite optical sensors were expanded, and market share is expected to increase further. [Investment Proposal] We believe that as the incremental market for inverter refrigerators continues to expand, there is still considerable room for improvement based on the current penetration rate. As the shortage of raw materials and rising prices improve, the company's home appliance business is expected to maintain steady growth in 2018. In the military business, the company is expected to broaden customers and order sources with the advantages of the entire industry chain. Huaqing Ruida's avionics module products have received orders for civilian use and have begun to contribute profits. The company is deepening the balance between “military to civilian” on the basis of “participation in the army,” and the military industry business is expected to achieve rapid growth. The company is expected to achieve revenue of 9.74/1,201/1,481 billion yuan in 18/19/20, net profit of 216/3.21/362 million yuan, and EPS of 0.60/0.74/0.84 yuan, corresponding to PE 23.44/19.03/16.88 times, maintaining the “increased holding” rating. [Risk Warning] The market demand for inverter controllers falls short of expectations; the growth rate of the military electronics business is slowing down; and the risk of mergers and acquisitions.