I. Overview of events

On the evening of October 17, Lucky Xincai released its third quarterly report for 2017: revenue in the first three quarters of 2017 was 180.6592 million yuan, down 4.15 percent from the same period last year, and the net profit attributed to listed shareholders was 68.4389 million yuan, down 10.61 percent from the same period last year, equivalent to 0.5573 yuan in EPS.

II. Analysis and judgment

The performance was in line with expectations, Q3 revenue returned to growth, month-on-month improvement, optimistic about the company's future prospects.

1. (1) in the performance forecast for the first three quarters of 17 years, the company pointed out that the net profit belonging to the shareholders of the listed company was 6890.94 million yuan, down 0% from the same period last year. The actual performance is basically in line with expectations. (2) the gross profit margin in the first half of the year was 42.48%, down 2.77% from the same period last year, and the net profit rate was 37.88%, down 2.73% from the same period last year; (3) the expense rate during the period was 16.78%, an increase of 1.23% over the same period last year. Among them, the sales expense rate, management expense rate and financial expense rate were 4.36%, 12.85%, 0.43%, 0.60%, 0.26%, 0.36%, respectively.

2. The company's revenue in the third quarter was 61.5079 million yuan, up 7.07% from the same period last year, 22.98% from the previous year, and the net profit was 21.7426 million yuan, down 3.00% from the same period last year, up 51.53% from the previous year, equivalent to 0.1861 yuan; the comprehensive gross profit margin was 41.75%, down 3.59% from the same period last year, and the net profit rate was 37.16%, down 5.08% from the same period last year. During the period, the expense rate was 17.35%, an increase of 0.97% over the same period last year. The interim sales expense rate, management expense rate and financial expense rate were 4.81%, 12.39%, 0.15%, 1.97%, 1.50% and 0.49%, respectively.

3, the main reasons for the decline in performance: 1) sales of thermal magnetic tickets declined slightly under the influence of seasonal changes in customer demand and orders; 2) EMV migration began to be implemented, and the demand for magnetic strips for bank cards decreased.

4. With the continuous expansion of railway mileage, the growth of railway passenger volume and the increase of the proportion of automatic ticket checking, the permeability of thermal magnetic train tickets is expected to further increase, and the company's thermal magnetic ticket products are expected to grow again.

Expand and solve the capacity bottleneck, lay out the development of new materials, and consolidate the foundation for future growth.

1. The production capacity utilization rate of the company's main business thermal magnetic tickets has reached 110% in 2016. in February 2017, the company started to expand the thermal magnetic ticket production line, which is expected to be completed by the end of next year. After completion, the production capacity is expected to increase from 22000 tons / year to 32000 tons / year, an increase of 45.5%. At the same time, the company has invested heavily in research and development, actively expanding the development of decorative film, FPC electromagnetic wave protective film, magnetic water treatment resin and other products.

2. With the growth of the operating length of high-speed rail and the increase in the proportion of passenger transport, the company's orders will resume growth, and the release of capacity on the new production line will lay the foundation for sustained growth. The company's research and development of products in the field of new materials will bring new growth points for the company.

Third, profit forecast and investment suggestions

The company is a leading enterprise in the domestic thermal magnetic ticket and magnetic stripe industry. Taking into account the release of new production capacity in 2019 and the performance growth in the first three quarters, it is estimated that the EPS for 2017-2019 will be RMB 0.78,0.93,1.30 respectively. Based on the company's industry status and as a listing platform under China Lucky Group, the company will be given a reasonable valuation of RMB 32,55,37.20 in 2018 and a reasonable valuation of RMB 32.55,37.20 over the next 12 months, maintaining its "highly recommended" rating.

Fourth, risk tips:

1, the decline of product prices; 2, the change of railway ticket policy; 3, the research and development of new products is not as expected.