Brief performance review of Lekai New Materials disclosed the results of the third quarter of 2017: in the third quarter of 2017, the company achieved operating income of 181 million yuan, -4.15%; net profit of 68 million yuan, -10.61%; the company's 2017 Q3 single-quarter operating income of 62 million yuan, +7.07%, +26.53% over the second quarter; net profit of 0.2 billion yuan, -5.84% year-on-year, +37.50% in the second quarter, improved month-on-quarter. Business analysis performance declined slightly year-on-year, with significant month-on-month improvements in a single quarter: the company's revenue declined slightly in the third quarter of 2017, mainly affected by seasonal fluctuations in demand for thermal magnetic tickets and the implementation of EMV migration; net profit fell 10.61% year over year, mainly because the company continued to increase investment in R&D and actively expand market share during the reporting period, leading to a slight increase in management expenses and sales expenses. +0.26ppt and +0.60ppt year on year. The company's operating conditions improved markedly month-on-month in the 2017 Q3 quarter, and the cost control capability was greatly improved. The management expense ratio and sales expense ratio were -6.85ppt and 3.08ppt compared to the second quarter. Benefiting from good cost control, the company's Q3 net interest rate for the single quarter was 37.16%, a sharp rise of 7.00ppt from the second quarter. Demand for thermal magnetic tickets continues to be strong, and the company has initiated production line expansion: According to the “13th Five-Year Plan” for the Development of Modern Integrated Transportation Systems issued by the State Council, by 2020, China's high-speed rail will cover more than 80% of cities with a resident population of more than 1 million in urban areas, and the total operating mileage will increase from 19,000 kilometers in 2015 to 30,000 kilometers. The construction of high-speed rail lines will continue to drive demand for railway thermal magnetic tickets. Currently, thermal magnetic tickets account for only half of the total train ticket market. In the future, the replacement of traditional train tickets will become an important driving force for the company's performance growth. During the reporting period, the company decided to launch the “Thermal Magnetic Ticket Production Line Expansion Project”, which is scheduled to be completed by the end of 2018. Furthermore, the company has a multi-point layout in the field of new materials and is actively expanding the development of new material products such as decorative films, electromagnetic wave protective films for FPCs, and magnetic water treatment resins. Among them, radio wave protective films are expected to enter the market as soon as this year, and will make a significant contribution to the company's performance starting next year. It is expected to benefit from the integration of resources of Aerospace Science and Technology Group and the construction of Xiong'an New Area: The company is the Sun Company of Aerospace Science and Technology Group and merged into Aerospace Science and Technology Group Corporation in 2011 with the overall restructuring of the Aerospace Science and Technology Group. The Aerospace Science and Technology Group has clearly stated the goal of tripling the asset securitization rate during the “13th Five-Year Plan” period. Lekai Group has close industrial cooperation with various research institutes of the Aerospace Science and Technology Group. We judge that the company is expected to become the focus of the Group's resource integration. In addition, the Aerospace Science and Technology Group has invested in the construction of an aerospace science and technology industrial park in Gu'an, Hebei since 2012, and will use Gu'an as a base to cultivate strategic emerging industries such as aerospace technology equipment, satellite applications, new materials, new energy, energy saving and environmental protection. In April 2017, the CPC Central Committee and the State Council issued a notice in April 2017 deciding to establish Hebei Xiong'an New Area. The Aerospace Science and Technology Group actively stated that it “supports central deployment and fully supports the construction of Xiong'an New Area”. The company is located in the hinterland of Beijing-Tianjin-Hebei, close to the Gu'an Aerospace Industrial Group, and is expected to directly benefit from the construction and development of the Gu'an Aerospace Industrial Cluster and Xiong'an New Area. The company's quarterly performance improved markedly during the profit forecast reporting period. The first three quarters cumulatively completed 60% of the expected full-year performance. We believe that the company has achieved the expected performance for the whole year with high certainty and maintains the company's profit forecast. The company's revenue for 2017-2019 is expected to be 2.91/3.25/370 million yuan, up 11.1%/11.9%/13.7% year on year; net profit is 1.19/1.33/151 million yuan, up 10.56%/11.59%/12.93% year on year. Investment advice We believe that the company is a high-quality military to civilian enterprise. The business occupies a small but beautiful segment, and its profitability continues to be remarkable. The company is an important new materials business platform for the Aerospace Science and Technology Group in the civil-military integration process. It is expected to benefit from the integration of the Group's assets and the development of the Gu'an Aerospace Industry Group and Xiong'an New Area. During the reporting period, the company distributed a total of 36.84 million yuan in cash dividends including tax. The current stock price after interest and exclusion of interest corresponds to 29X17PE and 26X18PE. Considering the large fluctuations in the GEM market environment, we lowered the company's target price. The target price for the next 6-12 months is 36 yuan, maintaining the “buy” rating. The impact of risky e-tickets on thermal magnetic tickets; the impact of EMV migration implementation; asset integration falls short of expectations; and the construction process of Xiong'an New Area falls short of expectations.