Investment highlights: In 2017, revenue increased 25.61% year on year, and net profit increased 11.84% year on year. Announcing the 2017 annual report, revenue was 1,318 billion yuan, an increase of 25.61% over the previous year. Net profit of the mother was 132 million yuan, up 11.84% year on year. The comprehensive gross profit margin was 23.40%, down 1.98 pct year on year; the period expense ratio was 13.4%, up 0.46 pct year on year. Cash dividends of 0.5 yuan (tax included) are distributed for every 10 shares. The increase in the company's revenue was mainly due to the sharp year-on-year increase in revenue from automotive application products. Among them, the supply of new energy vehicle drive motors to SAIC-GM-Wuling increased rapidly, and automotive electronic controllers also achieved high growth based on the high prosperity of heavy trucks. In terms of gross margin, the gross margin of sewing machine application products fell 8.36 pct year on year, due to declining revenue and relatively fixed costs. The significant increase in direct labor and manufacturing costs led to a year-on-year decrease of 2.46 pct in gross margin of intelligent controllers. Revenue for the first quarter of 2018 increased 29.48% year on year, and net profit decreased 14.68% year on year. In the first quarter of 2018, the company's revenue was 326 million yuan, up 29.48% year on year; net profit was 18.61 million yuan, down 14.68% year on year. The year-on-year decline in net profit was mainly due to (1) comprehensive gross margin falling 2.71 pct to 19.37% year on year. (2) The rate for R&D investment and exchange losses increased by 0.27pct during the period: financial expenses increased 126.72% year over year to 6.09 million yuan; management expenses increased 21.79% year over year to 34.71 million yuan. Year-on-year change in profit for the first half of 2018: -20% to 20%. At the same time, the company announced that the net profit range for the first half of 2018 is expected to return to the mother's net profit range of 4549.5 to 68.243 million yuan, a year-on-year change of -20% to 20%. The company increased its R&D investment in the new energy drive motor business. Automotive applications: New customers for new energy drive motors, and the boom in heavy trucks is driving the expansion of this sector. In 2017, the company's automotive application business had revenue of 719 million yuan, an increase of 45.38% over the previous year, a revenue share of 54.55%, and a gross profit margin of 27.81%, an increase of 1.11pct over the previous year. 1. New energy vehicle drive motors: The company has achieved remarkable customer development results. The company has established supporting partnerships with SAIC Motor, Yuchai Group, Geely Automobile, Zotye Automobile, SAIC-GM-Wuling, etc. New key models added: (1) GM Wuling Baojun E100. Mass production was formed in September 2017. The company is the only supplier of its drive motors. (2) Geely FE-3ZA/GE12 models supply drive motor assemblies. The contract is valid from December 2017 to the end of November 2018. We expect the overall contract amount to be around RMB 80 million. We think it is possible that the company will enter Geely's successor electric models. 2. Seat motors: Customers continue to expand, breakthroughs. The main customers of seat motors for high-end luxury car companies include Toyota, BMW, Mercedes-Benz, Volvo, Ford, Roewe, etc. Shipments increased from 2.8 million units in 2016 to 4.3 million units, an increase of 54% over the previous year. In 2017, the company officially entered the Land Rover Jaguar model supply chain, breaking through high-end luxury models for the first time, demonstrating product quality and competitiveness. As downstream customers continue to expand, we expect the company's seat motor sales volume to reach 7.5-8 million units in 2018. 3. Main business entities: DeVos In 2017, DeVos withheld non-net profit of RMB 25.9691 million, fulfilled its performance promise of 74.20%, corresponding to impairment of goodwill, and lost RMB 33.7569 million. It was mainly affected by the adjustment of the NEV subsidy policy, and sales of new energy logistics vehicles fell short of expectations. DeVos deducted a cumulative non-net profit of 5,516,600 yuan in 2015-2017, and the difference between the promised performance and the promised performance was 20,4814 million yuan. The deworth performance provider will pay share compensation, corresponding to a fair value of 69.1667 million yuan based on the market price at the end of the period. 4. Main business entities: Shanghai Haineng In 2017, Shanghai Hyanneng withheld a non-net profit of 909.215 million yuan and fulfilled its performance commitment of 108.24%. In 2015-2017, we achieved a total of 241 million yuan in non-net profit deductions and fulfilled our performance commitments. The boom in the heavy truck market has led to a high sales volume of automotive electronic controllers. The company produces and sells more than 300,000 sets of ECU, GCU, DCU and other products throughout the year, an increase of more than 30% over the previous year. The GCU products developed by the company that meet the national six standards have successfully passed Yuchai's supporting inspection, laying a solid foundation for the continued growth of the natural gas engine control market in the future. 5. Our judgment on the subsequent growth of this sector of the company's automobile motors, especially new energy vehicle drive motors, will continue to be the main driving force for the growth of this sector in the future. In 2018, the company's supply of GM Wuling Baojun will rise further, and supply to Geely will also increase. The subsequent expansion of new Geely models and SAIC Motor is also worth paying attention to. The company is closely developing and marketing lightweight high power density (flat wire motors) and integrated drive systems for new energy vehicles. Integrated products target overseas technology routes and achieve high-precision integration of “motor+electronic control+reducer”, which is expected to gradually switch from simple motors to 3-in-1 integrated products. Although R&D may affect net profit performance in the short term, or to some extent, in the long run, the company will further improve its technical standards, customer structure, and competitiveness. Sewing machine application category: Continued transfer to Vietnam. In 2017, the company's sewing machine application revenue was 211 million yuan, a year-on-year decrease of 11.49%. The gross profit margin was 15.88%, down 8.36 pct from the previous year. The decline in revenue stemmed from a decline in orders and a 5.37% year-on-year decrease in sales of sewing machine motors; the impact of the depreciation of the US dollar on revenue; and the decline in gross margin was mainly due to a decline in revenue while part of the cost was fixed. The production capacity of household sewing machines continues to shift to Vietnam, and future profitability is expected to increase. Intelligent controller: Revenue increased 9.49% year over year. In 2017, the company's intelligent controller revenue was 301 million yuan, up 9.49% year on year; gross profit margin was 13.15%, down 2.46 percentage points year on year. Mainly, direct labor costs and manufacturing costs both increased significantly, up 57.48% and 121.25% year on year, respectively. We expect the company's volume in this sector to remain stable in the future. Profit forecasts and investment advice. We expect the company's net profit of 148 million yuan, 201 million yuan, and 262 million yuan respectively in 2018-2020, corresponding to earnings of 0.33, 0.45, and 0.58 yuan per share. Since the company has vigorously built electric vehicle “motor+electronic control+reducer” integrated products and electronic control product teams in recent years, R&D expenses have been raised to a certain extent. Although it has a certain impact on net profit in the short term, it has long-term far-reaching significance for the improvement of the company's technical standards and market competitiveness. Based on the continuous rise in shipments of new electric vehicle customers and the introduction of flat wire motors and integrated products, the company will continue to optimize technical standards, product lines, and customer structure in the field of electric vehicle motor electronic control in the future. Give 2018 PE 30X, with a target price of 9.90 yuan/share. “Buy” rating. Risk warning. Market competition has intensified, and product prices have declined.