1. Overview of the incident The company recently issued an announcement that it plans to acquire 100% of Hongxiang Technology's shares at a transaction price of 1.16 billion yuan and 100% of Zhongqiang Technology's shares at a transaction price of 1.05 billion yuan. At the same time, the company plans to raise no more than 1,017 billion yuan in supporting capital to pay for intermediary fees, cash consideration, and fund-raising projects related to Hongxiang Technology and Zhongqiang Technology. 2. Analysis and judgment The leading position of subway ventilation equipment is stable, and rail transit and nuclear power investment boosts the growth of the main business. Ventilation system equipment such as fans, silencers, and air valves is widely used in subways, tunnels, nuclear power, marine, civil and industrial fields, and has a stable position in the subway and tunnel ventilation industry. During the “13th Five-Year Plan” period, China expects to build 2,500 kilometers of new subway stations, and the CAGR will reach 11.38%. Before 2020, China plans to build 5,000 tunnels with a length of more than 9,000 kilometers. As investment in rail transit infrastructure increases, the company's main business will continue to improve. At the same time, the restart of nuclear power will contribute additional volume to the main fan industry. The gross margin of nuclear power ventilation products exceeds 60%, which is significantly higher than that of subway and tunnel products. After restructuring and enriching the company's product line and transforming the military and civilian into high-end equipment manufacturers and mergers with Hongxiang Technology and Zhongqiang Technology, the company will change the current situation of relatively single product categories and expand into the fields of R&D and manufacturing of high-end equipment for infrared imaging, ultraviolet imaging, and gas imaging, as well as the production and development of military camouflage products. The company's ventilation equipment is widely used in ships and large-scale military bunkers. In the future, it is expected to be deeply integrated with Zhongqiang Technology and Hongxiang Technology in the military field, and grow into a high-end military and civilian integration equipment manufacturer with diversified products for military fans, infrared/ultraviolet detection, and camouflage technology. The performance of mergers and acquisitions has continued to grow at a high rate, and the profitability of listed companies has improved markedly. The targets of mergers and acquisitions are all high-quality enterprises in their respective fields, and all have been given high performance promises and commitment periods. From 2016 to 2019, Hongxiang Technology promised net profit of not less than 50 million yuan, 75 million yuan, 93.75 million yuan, and 117.2 million yuan, respectively. The cumulative promised net profit was not less than 335.95 million yuan, and the CAGR reached 32.84%. From 2016 to 2020, Zhongqiang Technology promised net profit of no less than 35 million yuan, 70 million yuan, 94.5 million yuan, 127.57 million yuan, and 172.2263 million yuan, respectively. The cumulative promised net profit was not less than 499.3013 million yuan, and the CAGR reached 48.94%. The company's fan business has a long repayment cycle, and the calculation of bad debts affects performance to a certain extent. After the completion of this transaction, the company's profitability will be significantly improved and the performance of listed companies will be greatly enhanced. 3. Profit forecast and investment advice: Regardless of the impact of this merger and acquisition, the company's EPS from 2016 to 2018 is expected to be 0.30, 0.37, and 0.44, respectively. Considering the impact of this restructuring, the company's exam preparation results from 2016 to 2018 were 132 million yuan, 205 million yuan, and 259 million yuan respectively. Assuming that the share capital after this increase was 270 million shares, corresponding EPS was 0.49 yuan, 0.76 yuan, and 0.96 yuan respectively, and corresponding PE was 64 times, 41 times, and 33 times, respectively, and recommended a “highly recommended” rating for the first time. 4. Risks suggest that the progress of subway and tunnel construction is slowing down, major asset restructuring is blocked, and the performance of mergers and acquisitions falls short of expectations.