Events: The company released its 2017 performance report, achieving operating income of 2,630 billion yuan, an increase of 66.23%; operating profit of 364 million yuan, an increase of 673.24%; net profit of 502 million yuan, an increase of 87.92% over the previous year. The LED chip industry is booming, and the time is right for the company to expand production. The LED chip industry has entered a new boom cycle since the end of 2016. The contraction of early supply and the impetus of downstream demand have caused the industry to be in short supply. The company kept pace and expanded production in a big way, from 700,000 pieces per month at the beginning of the year to around 1.8 million pieces at the end of the year. Production capacity remained at the forefront of the industry, which also led to a significant increase in profits. At the same time, the expansion of the scale effect and the synergy brought about by the merger with Azurite Technology have brought the company's gross margin and net profit margin back to a fairly high level, production line restructuring has reduced costs, and the focus of products has shifted to the high-end. Due to the relatively backward and old machinery and equipment at the Wuhan base, the company selected and replaced production lines in the Wuhan factory and integrated overall production line resources during this year, further improving the company's overall production and operation efficiency, while reducing management costs and labor costs, which in the long run will help improve the company's profitability. In terms of product lines, the company continues to increase investment in research and development, and the product structure has been adjusted to the high-end, distancing itself from the fiercely competitive low-end white light market and ensuring the company's long-term competitiveness. The investment of 10 billion dollars guarantees the company's long-term growth space. The company signed an investment framework agreement with the Yiwu Information Optoelectronics High-tech Industrial Park Management Committee to invest in advanced semiconductor and device projects, including ① LED epitaxial and chips; ② sapphire substrates; ③ ultraviolet LEDs; ④ infrared LEDs; ⑤ microLEDs; ⑥ MEMS sensors; ⑦ vertical cavity surface-emitting lasers (VCSEL) ⑧ gallium nitride (GaN) -based lasers; ⑨ gallium nitride (GaN) -based power electronics devices, etc. We believe that the company is undergoing a transformational transformation from an LED chip manufacturer to an advanced semiconductor manufacturer. This investment points out the direction and path for the company's long-term development and is worth continuing to follow. Profit forecasting and valuation. Regardless of additional dilution, we expect the company's EPS from 2017 to 2019 to be 0.60/0.94/1.28 yuan, respectively, and the corresponding PE to be 31/20/15, giving a buying rating. Risk warning. Downstream LED demand shrinks; business consolidation falls short of expectations.