Key investment points: The company is a leader in the field of military optical simulation in China, focusing on the development and manufacture of missile optical simulation, guidance, and test modules. The company's optical simulation, guidance, and test modules are mainly used by the military and military industry group research institutes to develop and test missile weapon systems. The company's missile optical simulation technology is in a leading position in China. At present, it has developed four generations of products. The technical indicators cover visible light, infrared, laser and millimeter wave bands. It has been applied to many key model development processes, and won the first prize of the National Defense Science and Technology Progress Award in 2016. The company's revenue is growing steadily and its profitability is strong. The company's revenue growth is relatively stable. Revenue growth in 2017-18 was 14.81%/14.48%, respectively. The company's gross margin has declined slightly in recent years, but it is still at a high level. The gross margin in 2016-18 was 72.25%/65.29%/48.59%. The slight decline in gross margin was mainly due to the decline in revenue from optical guidance and test products with high military compensation in the previous year and high gross margin in 2018. The company attaches importance to R&D. The share of R&D investment has increased year by year in the past 3 years. In 2017-18, R&D expenses accounted for 4.96%/5.88% of revenue, respectively, and the absolute amount and proportion of R&D investment increased. Products in the R&D stage account for a relatively high share of the company's current revenue structure, and the PB/PE valuation method is recommended according to the current military pricing mechanism. Considering that the company's revenue consists of research and mass production products, according to the current military pricing mechanism, products in the research stage use provisional pricing, and the price only remains at a level equivalent to the cost of the product, and compensation is based on the price difference after the final price of the product is determined. Therefore, the company's current profit level and corresponding PE do not fully reflect the actual business situation. It is recommended to first use the PB valuation method, supplemented by PE valuation. The company's BVPS for 19/20/21 is estimated to be 12.42, 13.43, and 14.75 yuan/share, respectively, with an issue price of 38.09 yuan, corresponding PB of 3.1/2.8/2.6 times. The average PB level of comparable companies in 2019-21 was 4.9/4.5/3.9, and it is recommended to give PB a valuation of 3.5-4.5 times. Combined with the PB valuation method, we believe that the company's reasonable market value is 43.5-5.9 billion yuan. A reasonable share price range corresponding to the total share capital after issuance is 43.5-55.9 yuan. IPO premium effect: According to historical statistics, IPOs on the 30 days before listing have obvious premium characteristics. According to industry-wide IPO statistics since 2018, the premium rate is 47%-69%, so the likely price fluctuation range in the early stages of the company's listing is 63.95-94.47 yuan. Risk warning: risk of product finalization, risk of R&D progress falling short of expectations, risk of increased market competition. Special Reminder: The IPO pricing predicted in this report is not the price performance on the first day of listing, but rather a reasonable price range with the current market environment basically unchanged.