Matters: The company released its 2017 annual report: operating income of 119 million yuan, -9.07% YoY; net profit to mother 4558.29%, -12.83% YoY; EPS 0.37. Among them, for the second quarter, revenue was 493.481 million yuan, -21.64% year-on-year; net profit to mother was 1.5849 million yuan, or -33.43% year-on-year. Key takeaways 1. Revenue and profit declined in a single quarter in the second quarter. The main reason for the decline in the company's revenue was the decline in thermal magnetic ticket and magnetic stripe business volume. Among them, the decline in the thermal magnetic ticket business was affected by downstream customer production changes, and the magnetic ticket business was affected by the decline in demand for magnetic strips for bank cards due to the implementation of EMV migration. In terms of gross margin, the comprehensive gross margin of H1 in '17 was 60.94%, down 1.67% year on year. Among them, the thermal magnetic ticket business only declined in business volume, and gross margin remained stable, while the gross margin of the magnetic stripe business declined significantly (-10.29% year over year). 2. The thermal magnetic ticket business still maintains good profits. Currently, the company's thermal magnetic ticket design production capacity is about 2,200 tons/year. The company's thermal magnetic ticket production and sales have been growing steadily, and basically reached full capacity by the end of 2016. Although sales of H1 thermal magnetic tickets were impacted to a certain extent in '17, overall profits will remain good. At the same time, the company announced that it will launch the “Thermal Magnetic Ticket Production Expansion Project” and plans to increase production capacity by 1,000 tons/year. Currently, it plans to start production by the end of '18. 3. Potential new material technology platform companies expect FPC electromagnetic wave protective film release company to be one of the two listed platforms of the Lekai Group under the Aerospace Science and Technology Group. Based on its long-term accumulation and leading core technical advantages in the field of magnetic recording materials and thermal recording materials, the company continues to expand related products such as thermal magnetic strips and thermal paper, starting with thermal magnetic tickets (mainly downstream including blue high-speed rail tickets), and FPC electromagnetic wave protective film is a new product promoted by the company. At present, the product has been certified by some downstream FPC manufacturers and tested by terminal phone manufacturers, and the range of downstream manufacturers that have tested and certified has also been significantly expanded, so we look forward to welcoming volume as soon as possible. 4. Profit forecast and investment rating We expect the company's EPS in 2017-2018 to be 0.89 and 1.17 yuan, respectively, and the corresponding PE is 34X and 26X, respectively. The company is a potential new material technology platform with leading core technology. The main business is thermal magnetic tickets with excellent profitability, and the new material business such as FPC electromagnetic wave protective film is progressing steadily. Maintain recommended ratings. 5. Risk warning: The EMV migration impact of the magnetic stripe business continues, and progress in the release of new products is too slow