Incidents: On April 26, the company released its 2017 quarterly report, achieving operating income of 161 million yuan, an increase of 50.08% over the previous year; realized net profit of 14.47 million yuan, a year-on-year decrease of 23.43%; and realized net profit of 12.95 million yuan, an increase of 13.60% over the previous year. Key investment points: Combine harvester products have been successfully completed, and 2017 performance is expected to rise steadily. In 2016, China's agricultural machinery industry entered a period of deep adjustment due to the reduction in agricultural machinery subsidy quotas, falling food prices, and engine switching between the three countries. Against this background, the performance of the company's main business, combine harvesters, was sluggish. It achieved annual revenue of 384 million yuan, a year-on-year decrease of 31.35%, and gross margin of 20.85%, a decrease of 4 percentage points over the previous year. However, the combine harvester currently sold by the company is a new model launched in the second half of 2014. In 2015-16, the market was in the run-in stage. Further improvements in adaptability, reliability, and stability are still needed, which has led to a weakening of the company's product competitiveness. However, after two years of testing and improvement, the company refined the new model and increased inventory at the end of 2016. The performance of the first quarter of 2017 has improved markedly. It is expected that the company's combine harvester business may steadily pick up after 2017. Improve the product structure both internally and externally, and it is expected that there will be many highlights in future performance. In 2016, the company acquired 51% of Starlight Yulong's shares and 56.66% of Starlight Precision's shares at a price of 153 million yuan and 033 million yuan respectively, and entered the field of balers and cotton pickers. At the same time, through independent research and development of large and medium-sized tractors and rotary cultivators, the company has initially established a full-process mechanized industry chain for five major agricultural crop varieties. At present, the company's tractors, rotary cultivators, and cotton pickers already have small-batch production capacity, and balers have begun to contribute to performance. According to Starlight Yulong's performance promises, the net profit for 2016-18 was not less than 250, 30, and 35 million yuan, while it achieved net profit of 32.34 million yuan from April to December 2016, which greatly exceeded the performance commitment limit. We believe it is a probable event that Starlight Yulong fulfills its performance promise, and as the company continues to improve its industrial layout, other agricultural machinery products are expected to have a synergistic effect, and future performance is worth looking forward to. The fixed increase has been increased again, and the layout of the entire industry is expected to accelerate. In February 2017, the company issued a one-year fixed increase plan (third revised draft). It plans to raise 559 million yuan at a price of no less than 26.41 yuan/share, mainly for Starlight Yulong's “5,000 unit-a-year baler project” and the parent company's “10000 large and medium-sized tractor projects”. Currently, the fixed increase still needs approval from the Securities Regulatory Commission. We believe that this fixed increase is conducive to realizing the development strategy of the entire mechanized industrial chain for the company's main crops, improving the risk of a single original product structure, and is expected to further enhance the company's profitability. Raise the company to the “increase in holdings” rating: Based on prudential principles, the impact of fixed increases on the company's performance is not yet considered. The company's net profit for 2017-2019 is estimated to be 60 million yuan, 75 million yuan, and 99 million yuan, respectively, corresponding to EPS of 0.30 yuan/share, 0.37 yuan/share, and 0.49 yuan/share. Based on the closing price of 19.99 yuan on May 10, the corresponding PE is 67, 54, and 41 times, respectively. As agricultural supply-side reforms advance, the company's combine harvesters are expected to achieve steady growth with differentiated competitive advantages. At the same time, the company continues to improve its entire industry layout through fixed increases, and future performance is expected to blossom a little more. Furthermore, the company's current stock price is lower than the fixed increase benchmark price, so there is a margin of safety, and the company has been upgraded to the “increase in holdings” rating. Risk warning: Competition in the combine harvester market has intensified; the performance of the company's new products has not met expectations; fixed increases the risk that administrative approval will not pass.