Investment highlights forecast performance is in line with expectations, and changes in defense product structure, sales volume changes, and civilian goods revenue growth boost profits. The company's performance forecast shows that in 2017, the company achieved net profit of about 43.61 million yuan, an increase of about 47% over the previous year, and net profit of about 38.93 million yuan after deduction, an increase of about 53% over the previous year. The main reasons for the increase in performance are: changes in defense product structure, sales volume, and private goods revenue growth in 2017; the operating profit of investment enterprises accounted for by the equity law increased by about 17 million yuan over the same year; the increase in government subsidies increased non-recurring profit and loss by 1.3 million yuan; the increase in government subsidies increased non-recurring profit and loss by 1.3 million yuan; and the wholly-owned subsidiary defense company accrued bad debt preparations, which affected net profit by 10 million yuan. The defense business is progressing steadily, and the main business is promising for a long time. The company's defense sector includes three major fields: large-scale weapon system assembly integration, precise guidance and guidance, and optoelectronic information equipment. Large-scale weapons assembly integrates new weapon models under development and preparation for delivery. It has gradually moved from a single delivery to a joint development stage. Some bidding projects have gained a leading edge. As our military equipment replacement process progresses, orders for defense products are expected to pick up. The precision guidance guide business is full of ordering tasks, and has realized technological innovation and model expansion for last-guided artillery shells of different ballistic diameters, laser-guided missiles, guided bombs, and rocket bombs for different launch platforms, and successfully expanded the field of application of leading military forces. While maintaining the competitiveness of existing products in the field of optoelectronic information equipment, development tasks and intentions for various aviation projects have been determined. The company's main business is optimistic for a long time. The optoelectronic device business chain is gradually improving, and profitability is expected to continue to improve. Xinhuaguang Company, a subsidiary of the company, which mainly engages in the optoelectronic materials business, has vigorously expanded the market and achieved remarkable results in developing major customer resources. Currently, it has reached cooperation with many famous domestic optical technology companies. Fluorophosphorus glass has been successfully developed and tested, and demand is growing rapidly. The production and sales volume of infrared chalkali glass is at the forefront of the country. It has begun to do business with many international companies, and is also used in weapons and equipment such as gun targets in the field of national defense and military use. At the same time, the company actively lays out, improves upstream and downstream business chains, explores the chalkyl glass application market, and enhances business competitiveness. Xinguanghua is also following up on the emerging optical application market and is increasing its exploration of terminal demand. It is expected that the company's efficiency level will continue to improve in the future. The Group's mixed reform is progressing steadily, and the injection of high-quality assets can be expected. In January 2017, the Ordnance Group issued the “Guiding Opinions of China Ordnance Industry Corporation on Developing a Mixed Ownership Economy (Trial)”. By the end of the 13th Five-Year Plan period, the Group's asset securitization rate is expected to increase to 50%. With the finalization of the third batch of central enterprise reform pilots, the process of mixed reform of state-owned enterprises will be further accelerated. We expect that the company's expectations as an optoelectronic information business platform for the North Optoelectronics Group and the weapons industry as a whole will increase. It may inject high-quality assets under the North Optoelectronics Group in the future, and is expected to become a comprehensive listing platform for sub-groups such as Laser and Night Vision. Furthermore, in September 2017, the controlling shareholder, United Actors, Zhongbing Investment, increased its holdings of the company by 15.792 million shares (accounting for 3.1% of the company's total share capital) as planned, demonstrating recognition of the company's current value and confidence in future development. Risk warning. The profit growth rate for military and civilian goods fell short of expectations; the timing and content of asset injection were uncertain, etc. Earnings forecasts, valuations and investment ratings. Considering the impact of the increase in bad debt preparation by the company's subsidiary defense company on the company's net profit, we lowered the company's 2017/18/19 EPS forecast to 0.09/0.22/0.34 yuan (the original forecast was 0.11/0.23/0.36 yuan, respectively). The company's current stock price is 17.67 yuan, which is 206/82/53 times the PE corresponding to 2017/18/19, respectively. Considering the gradual deepening of the reform of the Ordnance Industry Group, the possibility of the company as an integrated platform for optoelectronic information products is increasing, and considering only the asset injection expectations of the North Optoelectronics Group, it maintains an “increase in holdings” rating, with a target price of 21.5 yuan.