1. Overview of the incident. Recently, Chaohua Technology issued a fixed increase plan: it plans to privately issue no more than 186 million shares and raise no more than 883.3 million yuan for the high-precision electronic copper foil project (phase II) with an annual output of 8,000 tons, a high-end core board project with an annual output of 6 million sheets, and an FCCL project with an annual output of 7 million square meters. 2. Analyze and determine the main business of adding code to electronic substrates, enriching the PCB raw material product structure, and in line with the “vertical integration” strategy 1. The company has been engaged in the PCB industry for many years and has deep industry experience in the fields of copper foil substrates, copper foil, single/double sided and multi-layer printed circuit boards. Currently, the business focuses on the field of rigid boards, mainly single/double panels and multi-layer boards. This fund-raising project will add to the company the manufacturing capacity of FR4-HDI special sheets and high-frequency copper-clad FCCL sheets. 2. Fund-raising project content: The high-precision electronic copper foil project (phase II) project with an annual output of 8,000 tons is an expansion. The construction period is 2 years, mainly to establish an electronic copper foil production line with an annual production capacity of 5,000 tons, including 3,000 tons of 6μm electronic copper foil and 2,000 tons of 8μm-10μm electronic copper foil; the high-end core board project with an annual output of 6 million sheets is newly built. The construction period is 1 year, adding 5.5 million pieces of FR4-HDI special sheet production capacity and 500,000 pieces of high-frequency copper clad plate production capacity; the annual output of 7 million square meters of FCCL It is a new construction. The construction period is 1 year, adding 7 million square meters of FCCL and 5 million square meters of covering film production capacity. 3. We believe that this fixed increase is in line with the company's PCB “vertical integration” strategy. It will expand and strengthen the company's main business, enrich the company's product line, effectively expand the production capacity of electronic substrates, improve the product structure, and provide “one-stop” services for downstream customers. The company has a competitive advantage in the layout of the entire PCB industry chain and rich experience in the production of standard copper foil. The construction of fund-raising projects will advance faster than before, and will benefit from the continued rise in the prices of PCB raw materials such as copper foil and copper-clad boards. The fixed increase project is a high-end advanced production capacity, in line with the development trend of high frequency, flexibility, and high density in the PCB industry 1. Currently, the thickness of the mainstream product of standard copper foil is 18-35 μm. High-precision electronic copper foil is the development trend of electronic copper foil, which meets the requirements of miniaturization, lightness, and high energy density of lithium batteries. The 6μm and 8μm-10μm high-precision electronic copper foils raised by the company are suitable for new energy vehicle power lithium batteries and copper clad plates for PCBs. 2. FR4-HDI board represents the future direction of the industry. FR4 core board is the most widely used heat-resistant material in the PCB field. HDI can greatly increase wiring density and realize the miniaturization and high-density development of circuit boards. HDI is a high-end product with high added value and high technology content in PCBs. Flexible copper clad plate (FCCL) is an important raw material for FPC, and the demand for lightness and miniaturization in smart terminals drives the continuous increase in FPC usage. 3. We believe that the company's fixed increase project is a high-end advanced production capacity, representing the future development trend of the industry in high frequency, flexibility, high density and high added value. It will benefit from the shift of the global PCB industry to the mainland and strong demand for electronic substrates from downstream consumer electronics. 3. Profit forecasting and investment advice The company is a leading supplier of PCB industry chain integration. Benefiting from the expansion of lithium battery copper foil production capacity and the copper foil price increase cycle, its performance will continue to improve. Regardless of additional dilution, the 2017 to 2019 EPS is expected to be 0.10 yuan, 0.13 yuan, and 0.16 yuan. Based on the performance elasticity brought about by the price increase of copper foil and the release of production capacity, the company was given 85 to 90 times PE in 2017. A reasonable valuation for the next 6 months is 8.5 to 9.00 yuan, maintaining the company's rating as “highly recommended.” 4. Risk warning: 1. The progress of copper foil production is lower than expected; 2. The risk of price fluctuations of raw materials such as copper foil; 3. Increased competition in the industry.