[event] on August 9, 2016, the company released its 2016 semi-annual report. During the reporting period, the company achieved a total operating income of 243.5444 million yuan, an increase of 102.98% over the same period last year, and a net profit of 48.3605 million yuan belonging to the shareholders of the parent company, an increase of 261.03% over the same period last year. During the reporting period, public security and network resources management maintained good growth, coupled with the excellent digital performance of the Tang Dynasty, the overall business performance grew steadily.

Many factors drive the sustainable development of the security industry: the continuous growth of basic network resources, the further improvement of the coverage of broadband access networks in urban and rural areas, the rapid popularization of the Internet, the introduction of network security policies one after another, the "network power strategy" has been incorporated into the 13th five-year Plan, and the security industry has ushered in development opportunities under the stimulation of market demand and policies, according to Technavio forecast. By 2019, the size of China's information security market will reach 3.62 billion US dollars.

Recently, the company has made great efforts to promote wireless Internet security management equipment, in response to the security management of wireless Internet access in public places by the national network regulatory authorities. At present, the company's products have been deployed on a pilot basis in 100 prefectures and cities across the country. If the market demand grows rapidly, the company is expected to become the biggest beneficiary and further increase its market share.

Pay close attention to development opportunities, endogenesis + extension to help growth: the company actively through foreign investment to expand its own advantages, enhance the value of the company. In 2014, the major asset restructuring of purchasing 100% equity of Tang Ren Digital, actively integrating resources and giving play to synergy, fulfilled its performance commitments in 2015 and 2015, and is expected to continue to thicken the company's performance in the future. In March 2015, the company acquired a 51% stake in Yahong Century and consolidated its leading position in this field by integrating relevant operators' businesses to enhance the market competitiveness and market share of Internet security management platforms in Internet communications management departments and telecom operators and other Internet security regulatory products of small and medium-sized IDC/ISP.

In the future, the company will continue to implement the "endogenesis + extension" development strategy, comprehensively consider supporting with the company's main business and producing synergy factors, and timely carry out epitaxial investment mergers and acquisitions in network and information security related industries.

Investment suggestion: our company forecasts that the EPS of our company in 2016, 2017 and 2018 will be 0.32 yuan, 0.44 yuan and 0.52 yuan respectively. Give a buy-A rating with a 6-month target price of 25 yuan.

Risk hint: the development of the network security industry is not as expected; the market promotion of the company's new products is not as expected.