This report is read as follows:

The company pioneered all-plastic process standards, product structure and profitability continued to improve, is expected to lock in more high-quality customers.

Main points of investment:

Covering and increasing holdings for the first time. It is estimated that 2017-19 EPS0.54/0.79/1.20 yuan, CAGR45%, reference industry valuation (PEG average 2.1 and PS average 11.7), combining PEG and PS valuation methods, based on the principle of prudence, we choose the lower PEG valuation method to give 2 times PEG in 2017, with a target price of 41.3 yuan, covering and increasing the rating for the first time.

The company is the first to create all-plastic process standards, and its profitability has been continuously improved. ① commutators are mainly used in micro-special motors for power tools, and the company's share of power tool commutators is 30%. The all-plastic new production process developed by ② company improves performance and saves materials and costs. the price of all-plastic models is 20% lower than that of ordinary models, while the gross profit margin is 2% higher. The gross profit margin of the company's all-plastic products increased from 27% in 2014 to 31% in 2016.

The proportion of all-plastic high-margin products has increased, and the product structure has been continuously improved. The company's revenue has declined slightly in recent years, the new all-plastic technology is still in the promotion period, and the adjustment of product structure has improved the overall profitability of the company: in terms of ① gross profit margin, the gross profit margin of traditional process products decreased in 2014-16 (from 30% to 23%). The gross profit margin of all-plastic products increased significantly in 2014-16 (from 27% to 31%). In terms of ② gross margin, the gross profit share of traditional hook products decreased from 31% to 24% in 2014-16, while that of all-plastic hook products increased from 27% to 31%.

Fund-raising projects break through the capacity bottleneck and are expected to lock in more customers. ① raised 276 million yuan to expand the production capacity of 100 million commutators, with a net profit of 54 million yuan a year after reaching production. At present, the capacity utilization rate is more than 90%, and the production and marketing rate is more than 100%. The downstream customers of ② Company are of higher quality. The company's overseas revenue accounts for 22%, and the gross profit margin of overseas products is 35% (19% in China). Overseas customers include Bosch, Hitachi, Siemens, Panasonic, GE and other well-known motor enterprises.

Risk hint: the risk of market expansion is lower than expected; the risk of technical route change of micro-motor.