1. Event Overview Recently, Chaohua Technology released its 2017 semi-annual report: 1) Achieved revenue of 626.2759 million yuan, a year-on-year increase of 48.40%, net profit attributable to shareholders of listed companies of 31.1231 million yuan, a year-on-year increase of 912.19%, a year-on-year increase of 912.19%, a year-on-year increase of 29.1825 million yuan, a year-on-year increase of 935.56%, basic earnings per share of 0.0334 yuan, net profit after deducting 0.0313 yuan; 2) Expected net profit fluctuation range from January to September 2017 was 35 million yuan to 45 million yuan, year-on-year increase 683.49% ~ 907.34% 2. Analysis and judgment that the performance of the first half of the year was in line with expectations, gross margin improved dramatically, and the boom in copper foil and copper clad plates 1. The interim report performance was in line with market expectations. (1) The company stated in its report for the first quarter of 2017 that the net profit attributable to shareholders of listed companies is expected to change from January to June 2017 to RMB 24.5984 million to RMB 35.362 million, with a year-on-year increase of 700% to 1050%. The results of this annual report are in the region where the company's forecast average is above the average. (2) The company's comprehensive gross margin was 15.64%, an increase of 6.91 percentage points over the previous year. (3) The three major products, printed circuit board/copper clad board/copper foil, had a year-on-year growth rate of 26.14%/45.66%/141.83%, revenue share was 47.47%/28.98%/17.58%, gross margin was 6.64%/13.63%/37.12%, respectively, and gross margin increased by 1.24/1.41/26.03 percentage points respectively. (4) The fee rate for the period was 11.54%, down 0.36 percentage points from the previous year. The sales expense ratio, management expense ratio, and financial expense ratio were 3.07%/5.32%/3.16%, respectively, a decrease of 0.28 percentage points, a decrease of 0.95 percentage points, and an increase of 0.87 percentage points. 2. During the reporting period, the main reasons for the sharp increase in the company's performance were: 1) the electronic substrate industry recovered, the prices of the company's copper foil and copper clad board products increased significantly year on year, market demand increased significantly, and sales revenue increased; 2) the company's “vertical integration” strategy was successfully implemented, the 6-8um high-precision lithium copper foil project was put into operation, the product structure was continuously optimized, and profitability improved. 3. We believe that, driven by the peak sales season for consumer electronics products such as new energy vehicles and smart phones, the supply of copper foil and copper clad plates is tight, and demand continues to be strong, and we will enter a new cycle of price increases. The company successfully completed the commissioning of the 6-8um high-precision lithium-ion copper foil project. After completion, the company will have a production capacity of about 10,000 tons of copper foil. The release of production capacity for electronic substrates is compounded by a cycle of price increases, and the company's performance will enter a stage of continuous growth. The performance from January to September is expected to increase, and the electronic base materials industry continues to improve. The third quarter's performance increased sharply year-on-year 1. The third-quarter results are expected to change in the range of 387.69 million yuan to 13.8.769 million yuan, an increase of 178.45% to 896.69% over the previous year. The main reasons for the increase in 17Q3 performance are: the domestic market for electronic substrates such as copper foil and copper clad boards continued to be good, and revenue continued to grow; the company increased capital expenditure, and financing expenses increased in the third quarter, and net profit was affected to a certain extent. 2. We believe that the company will benefit from the “industrial chain integration” strategic layout and the investment of new copper foil production capacity, and that the month-on-month decline in performance in the third quarter will not change the long-term performance growth trend. Reiterate the view: the main business will be increased, and the electronic substrate product structure will be in line with the “vertical integration” strategy 1. During the reporting period, the company plans to raise no more than 883 million yuan. The main fund-raising is: the high-precision electronic copper foil project (phase II) project with an annual output of 8,000 tons, a construction period of 2 years; a high-end core board project with an annual output of 6 million sheets, a construction period of 1 year; and an FCCL project with an annual output of 7 million square meters, with a construction period of 1 year. 2. 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, continuously optimize the high value-added 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. 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, performance will continue to improve. Regardless of additional dilution, EPS from 2017 to 2019 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 90 times to 95 times PE in 2017. A reasonable valuation for the next 6 months is 9 to 9.5 yuan, maintaining the company's rating as “highly recommended.” 4. Risk warning: 1. Implementation progress of fixed increases is lower than expected; 2. Prices of raw materials such as copper foil have fluctuated; 3. Competition in the industry has intensified.