1. Event Overview Recently, Derun Electronics released its 2017 semi-annual report: (1) The first half of the year achieved operating income of 2,410 billion yuan, an increase of 21.15% over the previous year, and realized net profit attributable to shareholders of listed companies of 91.6403 million yuan, an increase of 71.97% over the previous year; realized non-net profit attributable to shareholders of listed companies was 11.7693 million yuan, a year-on-year decrease of 66.59%; basic earnings per share was 0.2034 yuan, with non-earnings per share deducted from 0.0261 yuan; (2) The company expects January to September 2017 to be attributed The net profit of shareholders of listed companies was 122.3946 million yuan to 145.345 million yuan, an increase of 60% to 90% over the previous year. 2. Analysis and judgment that the semi-annual performance is in line with expectations, and the scale of business continues to expand 1. (1) The performance is in line with market expectations. The company pointed out in the performance report that net profit from the mother is expected to be 91.7659 million yuan in the first half of '17, an increase of 72.21% over the previous year. (2) The gross margin for the first half of the year was 14.51%, down 3.27 percentage points from the previous year. The three main business sectors: consumer electronics, automotive electronics, and Internet of Vehicles revenue increased by 21.07%/26.59%/7.03% year on year respectively, revenue share was 64.97%/26.81%/6.11%, gross margin was 14.07%/9.25%/19.56% respectively, down 2.30/6.04/4.55 percentage points year on year; (3) The period fee rate was 13.82%, down 2.75 percentage points year on year. Among them, the sales expense ratio, management expense ratio, and financial expense ratio were 2.83%/9.57%/1.42%, respectively, down 0.38/1.75/0.62 percentage points from the previous year. 2. The company achieved operating income of 1,241 billion yuan in the second quarter, an increase of 13.15% over the previous year, and net profit of 59.66 million yuan, an increase of 89.34% over the previous year. The consolidated gross margin was 13.85, down 2.83 percentage points year on year, and the period expense ratio was 13.52%, down 2.35 percentage points year on year. Among them, sales expenses/management expenses/financial expenses were 2.97%/9.75%/0.80%, respectively, up 0.58 percentage points year on year, down 1.67 percentage points, and down 1.26 percentage points. According to the company's performance forecast, the change in the company's net profit for the third quarter was 307.5543 million yuan to 53.7032 million yuan, an increase of 32.51% to 131.39% over the previous year. 3. The main reasons for the increase in the company's performance are: 1) steady growth in the home appliance and consumer electronics business; 2) the automotive electronics and Internet of Vehicles business has expanded smoothly; 3) the new energy charging module business has further received project orders from well-known domestic and foreign automakers. 4. We believe that the company's traditional consumer electronics business position is stable and its share is gradually increasing, the automotive electronics business has continuously made new breakthroughs, the high and low end layout has been improved, and the charging module for new energy vehicles has successfully entered the high-end automobile project market. Benefiting from the increase in the penetration rate of automotive electronics, the company's performance will continue to grow rapidly. The on-board charger business continues to break through major customers, and long-term performance growth is guaranteed1. During the reporting period, the company's holding subsidiary Meta System S.p.A., successfully entered the supply chain system of many automakers, including the exclusive global supplier of “on-board chargers” for Dongfeng Motor, Peugeot Citroen Group, and Citroen Motor, which jointly developed the “Electric Version Shared Modular Platform (eCMP)” project, Porsche, and Volkswagen. Previously, it also included projects for manufacturers such as BMW and PSA. Meta car chargers are equipped with the world's most advanced high-power DC fast charging technology. Compared with competitors' products, they have the advantages of small space consumption, light weight, advanced manufacturing technology, high charging power, extremely short charging time, and high safety. 2. We believe that the company's Meta charger technology leads the world, has sufficient orders, and has been recognized by high-end global automakers. In the future, the company will continue to expand domestic and foreign NEV markets, and its market share is expected to continue to increase, and the charger business will continue to contribute to the company's performance. [Blewan_S becomes UM to buy RY] 60% of Liuzhou Shuangfei's shares, and the automotive wiring harness market space is large. The company's investment value is highlighted 1. During the reporting period, the company completed the acquisition of 60% of Liuzhou Shuangfei's shares. Liuzhou Shuangfei's shares were transferred on July 27, and the newly issued shares were listed on the Shenzhen Stock Exchange on August 25. Liuzhou Shuangfei is mainly engaged in the design, development, testing and production of vehicle wiring harnesses, including airbag harnesses. Major customers include SAIC-GM-Wuling, Dongfeng Liuqi, Beiqi Foton, and Liugong Machinery. According to the fixed increase plan, the company plans to raise no more than 38,033 million yuan in supporting capital, with a reserve issuance price of 28.86 yuan/share (after excluding interest). The supporting funds raised are intended to be used for cash consideration for this transaction, construction of the Liuzhou Shuangfei project, and payment of expenses related to this transaction. In the future, the company will implement the issuance of shares to raise supporting capital. 2. According to data from the China Automobile Association, in the first half of 2017, passenger cars were produced cumulatively 11.4827 million units, an increase of 3.16% over the previous year; completed sales volume was 11.253 million units, an increase of 1.61% over the previous year. Among them, production and sales of new energy vehicles were 212,000 units and 195,000 units respectively, up 19.7% and 14.4% year-on-year respectively. The value of bicycle harnesses for traditional cars is about 2,000 to 4,000 yuan, and some high-end models are 5,000 to 6,000 yuan. According to China's automobile production in 2016, 28 million vehicles were produced, and the price of automobile wiring harnesses worth 2,000 yuan is conservatively estimated, the annual demand for the Chinese automobile wiring harness market will exceed 56 billion yuan. The requirements for automotive wiring harnesses for new energy vehicles are more stringent than those for traditional cars. Compared with traditional cars, the value of new energy vehicle wiring harnesses will increase by 20% to 40%. 3. We believe that the acquisition of Liuzhou Shuangfei will supplement the company's market customers in the field of own-brand model wiring harnesses and enter the supply chain system; at the same time, increase the company's automotive wiring harness production capacity and enhance product design and development capabilities; as the market share of domestic own-brand car manufacturers increases and the degree of automotive electronics increases, the company will benefit from the rapidly developing domestic automotive wiring harness market. Currently, the company's stock price is still below the fixed increase issuance price, and the investment value and margin of safety are remarkable. We are optimistic about the company's future development potential. 3. Profit forecasting and investment advice The company has formed a pattern of parallel development of the three major businesses of consumer electronics, automotive electronics, and the Internet of Vehicles. As an industry leader in the field of home appliances and consumer electronics connectors, Type-C products have now entered a performance release period; in the automotive electronics field, the company has a rich product line and strong technical strength, and demand for connectors and wiring products is strong, which will be a continuous growth point for the company in the future; in the field of Internet of Vehicles, the company's extended cooperation enhances technical strength, leading the industry's early layout, and products will gradually penetrate the automotive aftermarket. Considering the impact of increased dilution (fixed increase in the acquisition of 60% of Liuzhou Shuangfei's shares and supporting financing), it is estimated that the EPS from 2017 to 2019 will be 0.55 yuan, 0.91 yuan, and 1.27 yuan, maintaining the company's “highly recommended” rating. The automotive electronics business has entered the supply chain system of many automakers, and its performance is flexible, giving the company 50 to 55 times PE in 2017. A reasonable valuation for the next 12 months is 27.50 to 30.25 yuan. 4. Risk warning: 1. The progress of the automotive electronics business fell short of expectations; 2. The progress of the Internet of Vehicles project fell short of expectations; 3. The release of production capacity fell short of expectations.