Main points of investment:

The rapid growth of furniture consumption leads to a new round of equipment investment. On the one hand, the continuous growth of living conditions, urbanization rate, and disposable income led to the upgrading of furniture consumption. Retail sales of furniture in 2017 increased by 12.80% year on year, higher than the social average. Rising labor costs led furniture manufacturing enterprises to make a new round of investment. In 2017, fixed asset investment in the furniture manufacturing industry reached 372.943 billion yuan, an increase of 23.10%, an increase of 16.70pct over the same period last year. On the other hand, the personalized and fashionable demand for furniture led to the rapid expansion of the custom furniture industry. The revenue of nine custom furniture companies grew at a compound rate of 29.43% from 2013 to 2017, and production capacity expansion led to the purchase of production equipment. Investment in new production equipment reached 1.406 billion yuan in 2017, an increase of 122.32% over the same period last year.

Benefiting from the volume of domestic panel furniture machinery and equipment, the company's performance has maintained high growth. In the first quarter of 2018, the company achieved an operating income of 218 million yuan, an increase of 56.49% over the same period last year; a net profit of 26.2484 million yuan, an increase of 51.50% over the same period last year; a gross profit margin of 28.04%, a decrease of 1.32pct over the same period last year, mainly due to an increase in the purchase price of raw materials such as steel; and a net profit rate of 12.05%, a decrease of 0.40pct over the same period last year, mainly due to the increase in management expenses caused by the sharing of employee equity incentive costs. The company's customized furniture flexible automatic production line equipment has been recognized by the market and is expected to continue to increase volume in the future.

The interest rate of high-speed computer cutting board saw is the leading in the industry, and the products of wood processing center are designed and sold. The company's high-speed computer board saw products have outstanding advantages and are in the leading level in the industry; in 2017, the product achieved revenue of 131 million yuan and a gross profit margin of 37.95%, significantly higher than other domestic competitors; the main reason is that the company's high-speed computer board saw products have good performance, there is a reputation in the market, and the pricing is better than that of other competitors. The company fully understands the demand of downstream custom furniture enterprises for automatic production lines, and accelerates the research and development of wood processing center products. In 2017, the R & D investment was 31.777 million yuan, accounting for 4.07% of revenue, an increase of 0.41pct over the same period last year. The production process of the products has become stable, and the sales volume has been increasing continuously. In 2017, only two years after the products were put on the market, the sales revenue reached 175 million yuan, accounting for 22.39% of the revenue and 22.73% of the gross profit margin. In the future, we are optimistic about the increase of profits brought about by the volume of wood processing center products and the decline in costs after the products are mature.

The acquisition of the only network to achieve the "double main business", rapidly thickening the company's performance. In April 2018, the company completed the acquisition of only Network, an Internet integrated service provider specializing in IDC basic services and its value-added services, including server hosting and leasing, bandwidth leasing, cabinet and space leasing, cloud hosting, network protection, and so on. The performance commitment from 2017 to 2020 is that the net profit is not less than 55 million yuan, 68.5 million yuan, 85 million yuan and 97 million yuan respectively, the cumulative net profit of four years is not less than 305.5 million yuan, and the net profit is 5891.56 million yuan in 2017, which has fulfilled the performance promise of that year. After the company merges the only network, it will enhance the company's profitability and reduce the risk of company performance fluctuations.

Maintain the company's "overweight" rating. Taking into account the increased performance brought about by the acquisition of the only network, the company's net profit from 2018 to 2020 is expected to be 183 million yuan, 232 million yuan and 273 million yuan respectively, and the corresponding EPS is 1.40 yuan per share, 1.77 yuan per share and 2.08 yuan per share respectively. According to the closing price of 30.45 yuan on July 24, 2018, the corresponding PE is 22,17,15 times respectively. Considering the volume of domestic panel furniture machinery, the company is expected to fully benefit and maintain the "overweight" rating.

Risk tips: the growth of the downstream furniture industry is not as expected; the growth of the panel furniture machinery industry is not as expected; the performance of the company is not as expected; the performance of the acquisition enterprises is not as expected.