Key investment performance is in line with expectations, and the share of high-margin products has increased. In 2017, the company achieved revenue of 1,884 billion yuan (-14.71%), net profit of 44.41 million yuan (+49.98%), and an EPS of 0.09 yuan. During the reporting period, the company's sales volume of military assembly products declined year-on-year, operating income declined, the transfer value of assembly products was large, gross margin was relatively low, and the impact on profit was relatively low. The increase in sales volume of guidance products, optoelectronic materials and device products with high gross margins led to a rapid increase in net profit. It is expected that in the future, with the steady growth of the defense business and the continued expansion of the optoelectronic device business market, the company's performance is expected to maintain rapid growth. The defense business is progressing steadily, and the long-term development of the business is promising. In 2017, the company's defense business revenue was 1,413 billion yuan. Revenue fell 19.99% year on year due to a decline in sales of assembly products. The sharp increase in sales of guidance products with high gross margin led to a 28.82% year-on-year increase in the net profit of the defense business. In the field of large-scale weapons assembly integration, there is a continuous increase in the number of new weapon models under development and preparation for delivery. They have gradually moved from a single delivery to the stage of joint development. Several joint development projects are progressing smoothly, and the bidding project has successfully won the bid, and orders will be obtained one after another in the latter half of the “13th Five-Year Plan.” The precision guidance and guidance business is full of ordering tasks, and the annual output has reached a new high, achieving technological innovation and model expansion. The field of optoelectronic information equipment has determined the development tasks and intentions of a number of aviation projects, and competitiveness has been further enhanced. With the advancement of military informatization construction, the company's defense business development is promising in the long term. Customer development efforts in the optoelectronic device business are increasing, and profitability continues to increase. In 2017, the company's optoelectronic materials and devices business had revenue of 451 million yuan, an increase of 8.4% over the previous year. Through measures such as optimizing production processes and increasing yield, gross margin increased by 1.53 pcts year on year. The subsidiary Xinhuaguang continues to promote the development of major customers, reached cooperation agreements with automotive terminal customers, achieved a major breakthrough in the interchangeable lens market, and successfully obtained orders for the main interchangeable lenses manufactured by Fuji and the replacement lenses for the main new single-electric cameras. The product structure is excellent and continuously optimized. The focus on promoting high-end products such as new fluorophosphorus glass, highly refractive lanthanide glass, and environmentally friendly heavy flint already accounts for about half of the total sales revenue. As the company's market development efforts increase and product structure optimization, the profitability of the optoelectronic materials and devices business is expected to continue to increase. The Group's mixed reform is progressing steadily, and the injection of high-quality assets can be expected. In January 2017, the Ordnance Group issued the “Guiding Opinions of China Ordnance Industry Corporation on Developing a Mixed Ownership Economy (Trial)”. By the end of the 13th Five-Year Plan period, the Group's asset securitization rate is expected to increase to 50%. We expect that the company's expectations as an optoelectronic information business platform for the North Optoelectronics Group and the weapons industry as a whole will increase. It may inject high-quality assets under the North Optoelectronics Group in the future, and is expected to become a comprehensive listing platform for sub-groups such as Laser and Night Vision. Furthermore, in February 2018, the controlling shareholder, United Actors, Zhongbing, completed a plan to increase its holdings in the company, and accumulated an increase in the company's holdings by 19.91,000 shares (accounting for 3.89% of the company's total share capital), demonstrating recognition of the company's current value and confidence in future development. Risk warning. The profit growth rate for military and civilian goods fell short of expectations; the timing and content of asset injection were uncertain, etc. Earnings forecasts, valuations and investment ratings. We maintain the company's 2018/19 EPS forecast of 0.22/0.34 yuan and give the 2020 EPS forecast of 0.41 yuan. The company's current stock price is 17.13 yuan, corresponding to 2018/19/20 PE of 80/51/41 times, respectively. Considering the gradual deepening of the reform of the Ordnance Industry Group, the possibility of the company as an integrated platform for optoelectronic information products is increasing, and considering only the asset injection expectations of the North Optoelectronics Group, it maintains an “increase in holdings” rating, with a target price of 19.8 yuan.