Event: the company issued a forecast for the first quarter of 2021, with a net profit of 4000-50 million yuan, compared with the same period last year, with a net profit of + 362% 478% compared with the same period last year, deducting an 80% increase in non-homed net profit over the same period last year.

Military power and ammunition business has increased significantly compared with the same period last year, and is expected to maintain a high economy for the whole year. According to the announcement, the company's profit in the first quarter is mainly due to a substantial increase in the business volume of the company's power products and prefabricated fragment products compared with the same period last year, and if 21Q1 deducts the median non-net profit of 20Q4, the increase is 228.57% month-on-month, showing an accelerated trend. We believe that since the transformation of the military industry in 2018, the company has gradually formed a core business based on military power supplies and ammunition parts, benefiting from the accelerated volume of key aviation and aerospace equipment and practical training, and downstream demand is expected to show an upward trend. The proportion of the company's military business may continue to increase, continue to thicken the company's performance, and is expected to maintain high-speed growth throughout the year.

At the right time for the transformation of the military industry, the power and ammunition business is expected to grow rapidly. After successively withdrawing from the LED, biochemical industry and paper trading business, the company acquired 70% equity interest in Shenyang Haneng and 100% equity stake in sublimation power supply in 2018-2019, and formally transformed and formed a military business mainly composed of ammunition parts and military power supply, among which: 1) Shenyang Eneng is responsible for the R & D and manufacture of tungsten alloy prefabricated fragments of various specifications. Mainly for sea, land, air, rockets, strategic support and other multi-force shells, rockets and missiles products, and to establish stable relations of cooperation with a number of arms factories, and is a major supplier of some conventional shells and new rocket prefabricated fragments 2) sublimation power supply, specializing in the research, development, production and sales of high efficiency, high reliability and high power density power products, mainly including modular power supply and customized power supply system, downstream concentrated on airborne, shipborne and missile-borne multi-weapon platforms, customers include military enterprises, scientific research institutes and military factories, etc. 3) in order to continue to refine and strengthen the military power supply business, the company acquired a 20.06% stake in Galvite in 2020 to further expand to the upper and lower reaches of the power supply industry chain. It is expected to have a positive synergy with the company in power board fast technology, research and development work, and speed up the pace of localization of core devices. We believe that in view of the mass production of advanced fighters during the 14th five-year Plan period, the accelerated consumption of key aerospace equipment under the background of strengthening actual combat training, and the imperative of domestic substitution in the field of military power supply, the company's ammunition and power business is expected to grow rapidly and continue to thicken its performance.

Equity incentive binds to the interests of core employees, demonstrating the company's development confidence that the company launched an equity incentive plan in 2021, granting 4.4286 million shares to 56 directors, executives and middle managers at a price of 5.43 yuan per share for the first time. According to the conditions of equity incentive unlocking, based on the income of the main business in 2021, the income growth from 2020 to 2023 is not less than 10%, 25% and 50%, respectively. We believe that the landing of equity incentives will not only help to bind the company to the long-term interests of the core backbone and technical personnel, but also help to mobilize the enthusiasm of employees, contribute to the long-term and stable development of the company, and demonstrate the company's confidence in sustainable development in the future.

Investment suggestion: since the active transformation and development of the military business, the company has formed a core main business dominated by military power supply with ammunition parts as a supplement, and it is expected that during the 14th five-year Plan period, with the accelerated consumption of aerospace and aviation key equipment under the background of advanced fighter aircraft and actual combat training, the military business is expected to accelerate growth. At the same time, the turnover of the original sugar trade business is relatively fast and does not require a large amount of fixed assets investment, and the business scale can be adjusted according to specific conditions, which is expected to maintain steady operation and create a stable environment for the company's continuous business transformation. it is expected that under the traction of military business, the company's performance is expected to enter the rapid growth channel. We estimate that the company's net profit from 2021 to 2023 will be 1.96,2.98 and 431 million yuan respectively, and the corresponding valuation will be 29,19 and 13 times respectively, maintaining the "buy-A" rating.

Risk tips: military power orders are not as expected, domestic replacement progress is not as expected; ammunition business progress is not as expected; sugar trade business is not as expected.