The company released its three-quarter report on the evening of October 19, 2017. In the third quarter of 2017, it achieved operating income of 397 million yuan, a year-on-year decrease of 13.04%, and net profit of 408.389 million yuan, a year-on-year decrease of 50.09%; in the first three quarters, it achieved operating income of 1,142 million yuan, a year-on-year decrease of 22.05%, and net profit to mother of 131 million yuan, a year-on-year decrease of 42.77%. At the same time, the company expects a change range of 1.86 to 399 million yuan in net profit in 2017, with a year-on-year change of -40% to 0%. Core view: Revenue and net profit fell short of expectations, putting pressure on the company's annual results. Affected by the sharp rise in the prices of raw materials such as DDR memory, FLASH flash memory, PCB circuit boards, and steel plates, the company's digital set-top box business shipments declined drastically in the first three quarters of 2017, while gross margin declined seriously. At the same time, the company revealed in its semi-annual report that due to the adjustment of the national subsidy policy for new energy vehicles and CATL shipments from downstream customers, the revenue and gross margin of the automotive key parts business declined year on year; affected by military reform, the revenue and gross margin of the smart electromechanical business also declined to varying degrees. Our set-top box business is expected to improve next year. In order to cope with the impact of the sharp rise in raw materials, the company reduced costs through raw material bidding, so as to rationally arrange procurement throughout the year and control procurement costs. In terms of sales, the company actively communicates with customers. Currently, quite a few radio and television operators have raised purchase prices; in terms of production, the company has strengthened detailed cost management to reduce waste in all aspects. A number of new products have been developed in the field of new energy. The company revealed in its semi-annual report that it has successfully developed various products such as car charger series, charging pile series, and module series. Compared with traditional car chargers, the company's new car charger project uses DSP digital control. Currently, Jiasheng Power is preparing to build a R&D center for key components of new energy vehicles. At the same time, the company has successfully built a fully automatic stretch stamping production line, introduced more than 50 sets of internationally advanced automated production equipment, and realized robotic automated production of all production lines such as CNC cutting, CNC bending, and welding. The annual performance of the military business is under pressure. Tongzhi Electromechanical's military mechatronic systems are in a leading position in China. Their products are widely used in army equipment and will benefit from automated equipment upgrades. However, the company's smart mechatronics business was greatly affected by military reform, and both revenue and gross margin declined in the first half of the year. We believe that the company's military business is still under pressure throughout the year, but as the impact of military reform gradually weakens, the military mechanical and electrical business is expected to resume rapid growth starting next year. Profit forecasting and investment advice. We lowered the company's profit forecast. The company's EPS for 2017-19 is expected to be 0.22/0.28/0.35 yuan. We are optimistic about the subsequent development of the company's smart mechatronic products in the military industry and the huge potential of the company's NEV business, but due to pressure on this year's full-year performance, the company's rating was lowered to a “cautious increase” rating. Risk warning: Digital set-top boxes are difficult to improve in the short term, the growth rate of the NEV industry is lower than expected, the military business continues to decline, and product gross margin continues to decline.