Main opinion: The equity structure is clear, and the main business is clear. The largest shareholder of Rainbow shares with government subsidies to help invest in R&D is Xianyang Financial Holdings Co., Ltd., with a shareholding ratio of 31.01%. The actual controller is the Xianyang Municipal State-owned Assets Administration Commission. The company started with the color video tube business, and after transformation, it formed a business structure mainly engaged in R&D, production and sales of LCD substrate glass. The LCD substrate glass business accounted for 78.27% of revenue in 2016. The company's main business is in the high-tech industry. Most of the R&D projects are at the national level, and government support is strong. In 2016, government subsidies were 146 million yuan (revenue for the same period was 337 million yuan), and R&D investment was 138 million yuan, of which capitalized R&D accounted for 97.06% (since many of the company's R&D technologies were formed during the trial production process, the company included trial production costs of substrate glass products into capitalized R&D investment since 2014). The number of high-generation production lines has gradually increased, boosting performance growth. In recent years, consumer demand for larger display terminal products has increased markedly. Major manufacturers in the industry have moved their business focus to G8.5 and above high-generation panel production lines, and the company has also gradually begun to upgrade production lines to higher-generation production lines. In 2017, the company shut down the G5 wire body, the Hefei G6 wire body operated steadily, and developed key technologies for substrate glass manufacturing, achieving large-scale mass production of the first G7.5 TFT-LCD substrate glass in China. The first three quarters of 2017 achieved revenue of 300 million yuan, a year-on-year increase of 24.48%, and gross margin of 11.11%, an increase of 15.49 percentage points over the full year of last year. Large-size LCD panel production is shifting to domestic, and the monopoly of substrate glass technology needs to be broken TFT-LCD is currently the mainstream technology in the LCD market, accounting for more than 90%. It is expected that it will still dominate the next 5-10 years, and the growth on the demand side is self-evident. In recent years, mass production of high-generation LCD substrates in China has grown rapidly. It is estimated that sales revenue for the full year of 2017 will exceed 220 billion yuan, and it is expected to become the world's number one producer in 2018. Substrate glass accounts for about 10% of the cost side of LCD panels, but large substrate glass has long been dominated by import oligopolies. Major manufacturers include Corning in the US and Asahi Glass in Japan, making glass substrates the dominant spare parts in upstream TFT-LCD materials. Rainbow Co., Ltd. has maintained high R&D investment for many years. It has now achieved mass production of G7.5 substrate glass, and another G8.5 substrate glass R&D project has been put into operation. The smooth expansion of production lines will help the company break the oligopoly of large-size substrate glass. Large-scale fixed growth has been implemented, and production line volume performance will increase dramatically. In October 2017, the company's fixed increase project was officially launched, raising capital of 19.22 billion yuan. The investment projects are the capital increase of Xianyang Rainbow Optoelectronics Technology Co., Ltd. to build the G8.6 TFT-LCD project (investment of 14 billion yuan, total project investment of 28 billion yuan) and the capital increase of Rainbow (Hefei) LCD Glass Co., Ltd. to build a G8.5 LCD substrate glass production line project (investment of 5.220 billion yuan, total project investment of 6.03 billion yuan). After the fixed increase was completed, the Xianyang Municipal State-owned Assets Administration Commission became the actual controller of the company. The G8.6 LCD panel production line has been officially put into operation. It is expected that the first phase of the project will reach production in August 2018, and the entire line will reach production by the end of 2018. After delivery, it can achieve annual sales revenue of 10 billion yuan (29.7 times the company's revenue in 2016). Compared with other domestic enterprises engaged in large-size LCD panels, the company's gross margin is expected to change from negative to positive. The G8.5 glass substrate production line has been put into construction and is expected to bring the company annual sales revenue of 2,022 billion yuan after it is put into operation. The company has production lines in Hefei, Zhangjiagang, and Xianyang, and may further expand the coverage of high-generation substrate glass production lines in the future. The combination of the two projects will help the company become a leader in LCD substrate glass in China, and future performance is expected to change qualitatively. Profit forecast and valuation In 2017, the company's profitability began to recover, and the results of the large R&D investment in the early period began to show. With the implementation of fixed increases, the company will break the domestic monopoly on the import of large-size LCD glass substrates and help the development of large-size LCD panels on the cost side. The company has production lines in Hefei, Zhangjiagang, and Xianyang, and its location advantage is expected to support the company to become the leader in LCD glass substrates in China. At present, project construction is progressing smoothly. It is expected that volume will be achieved starting in 2019, waiting for the company's performance to explode. We predict that in 2017-2019, the company's EPS will be 0.02 yuan/share, 0.02 yuan/share, and 0.11 yuan/share, respectively. The corresponding PE will be 429 times, 349 times, and 76 times, giving it an “increase in holdings” rating. The risk suggests that the fixed increase project did not successfully reach production; downstream demand for LCD panels fell short of expectations.