3Q17 fell short of expectations. Xiongtao Co., Ltd. announced its results for the first three quarters: operating income of 1.98 billion yuan, up 10.29% year on year; net profit attributable to the parent company was 7022 million yuan, down 24.58% year on year, corresponding to earnings of 0.2006 yuan/share per share. In the third quarter, the company achieved sales revenue of 650 million yuan, up 5.2% year on year, down 15.5% month on month; net profit was 12.15 million yuan, down 66% year on year and month on month, lower than expected. Trends Financial expenses increased significantly in the 3rd quarter. The company's gross margin for the third quarter was 13.9%, up 0.3 percentage points from the previous month and down 3.7 percentage points from the previous year. We expect it to be mainly affected by fluctuations in lead prices. The sales expense ratio for the third quarter was 3.9%, down 0.4 percentage points from the previous year, up 0.6 percentage points from the previous month, and the management expense ratio was 5.4%, up 0.2 percentage points from the previous year, up 1.9 percentage points from the previous year. Financial expenses for the third quarter were 14.71 million yuan, up 437% year on year and 34% month on month, mainly due to high growth in short-term loans in the third quarter and increased exchange losses due to exchange rate fluctuations. Net profit for the full year is expected to decrease 35% year over year to increase 10%. The company predicts that net profit for the full year of 2017 is expected to be between 78.03 million yuan and 132 million yuan, a year-on-year decrease of 35% to an increase of 10%. That is, the net profit for the fourth quarter is expected to be between 7.81 million yuan and 61.84 million yuan, a year-on-year decrease of 71% to an increase of 129%. To reflect the lower-than-expected results for the 3rd quarter, we lowered our earnings per share forecasts for 2017 and 2018 by 28% and 25% from RMB 0.4 and $0.52 to RMB 0.29 and $0.39, respectively. Valuation and recommendations Currently, the company's stock price corresponds to a price-earnings ratio of 47 times in 2018. We maintain our recommended rating and target price of RMB 23.00, which is 24.06% higher than the current stock price. Prices of risky raw materials have fluctuated beyond expectations.