Key elements of the report:

In the first half of the year, the company realized operating income of 604 million yuan, an increase of 120.88% over the same period last year, and the net profit belonging to a listed company was 58 million yuan, an increase of 340.48% over the same period last year, and basic earnings per share was 0.25 yuan. The growth rate of the company's communications-related business has slowed down, and the development of extension has entered the harvest period. In the future, the company's "communication manufacturing + information service" strategy, information service is still the focus. Take mutual advertising and national capital interconnection as the leader to create a new leader in information service. The net profit of national capital interconnection in 2015 and 2016 is promised to be no less than 175 million yuan and 220 million yuan, and the performance in the past two years has been relatively certain. It is estimated that the company's revenue in 2015 and 2016 will increase by 116.95% and 32.55% respectively over the same period last year, and the net profit will be 172 million yuan and 253 million yuan respectively. Corresponding to the EPS of RMB 0.54 in 2015 and RMB 0.79 in 2016, the price-to-earnings ratio is 48 times and 33 times respectively at the latest closing price of RMB 26.06. in view of the fact that the market has not stabilized recently, the company is given a short-term "wait-and-see" and long-term "overweight" rating.

Events:

In the first half of the year, the company realized operating income of 604 million yuan, an increase of 120.88% over the same period last year, and the net profit belonging to a listed company was 58 million yuan, an increase of 340.48% over the same period last year, and basic earnings per share was 0.25 yuan.

Comments:

The company has maintained rapid growth for four consecutive quarters, and the comprehensive gross profit margin has continued to rise. The company's operating income in the first half of 2015 was 604 million yuan, an increase of 120.88% over the same period last year, of which 355 million yuan was the income of the newly added wholly-owned subsidiary Guodu Internet information services, with a net profit of 45.0067 million yuan, accounting for 77.59% of the company's net profit. For four quarters, the company has maintained rapid growth in revenue and net profit, with 2014Q1~2015Q2 revenue growth of 249.33%, 144.99%, 110.42% and 130.99% respectively, and net profit growth of 4143.70%, 54.44%, 281.55% and 393.48%, respectively. In the first half of the year, the company's comprehensive gross profit margin reached 24.76%, an increase of 4.21% and 5.51% respectively over 2014 and the first half of 2014. The increase in gross profit margin was due to the 25.06% gross profit margin of the newly connected countries, which pushed up the overall gross profit margin of the company. In addition, the adjustment of the sales structure of mobile terminals to high-margin routers and module products has increased the overall gross profit margin of mobile terminals from 19.40% in the first half of 2014 to 28.96% in the first half of 2015.

From the point of view of sub-business: the growth rate of communications-related business has slowed down, and the development of extension has entered the harvest period. The company's original main business wireless communications radio frequency and mobile terminal revenue were 0.95 yuan and 89 million yuan respectively, an increase of 12.98% and-36.53% respectively over the same period last year, and the revenue growth rate slowed down, which is expected to be affected by factors such as China Tower Corporation's collection and operator anti-corruption. In the first half of the year, new orders for communications-related businesses totaled 259 million yuan, accounting for 45.09 percent of the related revenue of 574 million yuan in 2014. In terms of extension development, the company began to acquire companies such as wide-wing communications, national capital interconnection, mutual advertising and so on in 2013. Among them, Guodu Interconnection, which was acquired in September 2014, is the leading enterprise mobile information service provider in China, with a performance commitment of 75 million yuan in 2015 and a net profit of 45 million yuan in the first half of the year. Broadband Communications, which was acquired in 2013, pledged 35 million yuan in 2015 and completed 16.31 million yuan in the first half of the year, accounting for 46.60 percent of the annual target.

Communications-related revenue will continue to grow steadily in the second half of the year. Fixed asset investment in the communications industry reached 399.2 billion yuan in 2014, the highest since 2009. In 2015, the three major operators will continue to increase investment in 4G. China Mobile Limited, China Telecom Corporation and China Unicom (3G+4G) estimate that 4G will invest 722,610 and 100 billion yuan, far more than the investment in 14 years. In addition, the State Council's speed-up and fee reduction and the implementation of the broadband China strategy will also enable operators to increase investment in related businesses, and is expected to drive two trillion yuan of investment and consumption. The company's wireless communications, radio frequency and optical fiber connectors and other products will directly benefit from the domestic 4G construction and the implementation of the "broadband China" strategy. Due to the impact of the slowdown in the growth rate of domestic smartphones, the future performance growth of mobile terminal sales business will face greater pressure.

In the future, the company's "communication manufacturing + information service" strategy, information service is still the focus. The company's "communication manufacturing + information service" strategy is gradually clear, with mutual advertising and the interconnection of the national capital as the leader to create a new leader of information service. 1. Internet digital marketing services: Interpublic Advertising acquired in June 2015 is engaged in the accurate delivery of Internet advertising and is committed to becoming a high-quality cross-screen SSP platform (a platform for omni-directional analysis and management of media advertising). Mutual Advertising is an Internet advertising and digital marketing platform company with technology-driven advantages, its main competitive advantage lies in the advantages of technology and cooperative media resources. The company has established cooperative relations with nearly 100 media, including Baidu, Inc., Alphabet Inc-CL C, Tencent, etc., with an average daily advertising display of more than 1 billion PV and a daily average of nearly 100 million users.

The net profit for 2015-2017 is promised to be no less than 100 million yuan, 130 million yuan and 170 million yuan, while the net profit of Wutong Communications for the whole year of 2014 is 56 million yuan, which is equivalent to the creation of two Wutong Communications. 2. Enterprise mobile information service: as a mobile information service provider, Guodu Interconnection, which was acquired in September 2014, provides short lottery mobile information services around banking, finance, Internet, consumer goods and other enterprise users.

The Capital Internet already has high-quality customers, including Baidu, Inc., Sina, NetEase, Inc, Yilong, 58.com, Qunar, Trip.com, Dianping, Youku, Leeco, Gome and other high-quality customers. In 2015 and 2016, the net profit of the Capital Internet is promised to be no less than 75 million yuan and 90 million yuan, and according to the completion of the first half of the year, the net profit for the whole year is likely to exceed the performance commitment level. 3. Muzhong + national capital two-wheel drive, which is expected to play a synergistic effect of 1: 1 > 2. Customer synergy: mutual advertising and National Capital Interconnection operate information services on PC and mobile Internet respectively, and have accumulated a large number of high-quality customer groups. In the future, under the influence of the company's overall information service strategy, form the complementarity of information service channels and the advantages of conversion and integration of corporate customers, and provide comprehensive information consulting services for each other's customers. Technology complementary effect: mutual advertising has advanced Internet marketing experience and marketing technology, which can provide the technology and experience needed for the development of the interconnected business of the capital, and realize the rapid expansion of the interconnection of the capital and the advance layout of new business. While mutual advertising mainly serves PC-side websites, with the development of mobile Internet, the company will also launch mobile products with the times and strive to become a high-quality cross-screen SSP platform. The technology and experience of China Capital Internet on the mobile side will provide great help for the realization of the future development goals of mutual advertising.

Investment advice: the company's revenue in 2015 and 2016 is expected to grow by 116.95% and 32.55% respectively compared with the same period last year, and the net profit is 172 million yuan and 253 million yuan respectively; the corresponding EPS in 2015 and 2016 is 0.54 yuan and 0.79 yuan respectively, and the price-to-earnings ratio is 48 times and 33 times respectively based on the latest closing price of 26.06. in view of the fact that the market has not stabilized in the near future, the company is given a short-term "wait-and-see" and long-term "increase" rating.

Risk hint: the performance commitment of the acquisition company is not up to expectation; the synergy effect of information service business is not as expected; the market competition is higher than expected.