The results for the first three quarters of 2017 fell short of expectations. Yongtai Technology announced 1-3Q17 results: operating income of 1.89 billion yuan, up 44.5% year on year; net profit attributable to parent company was 280 million yuan, up 128.2% year on year, corresponding to profit of 0.34 yuan per share, lower than the company's previous performance forecast; net profit after deducting 100 million yuan, down 10.4% year on year. 3Q achieved revenue of 657 million yuan, an increase of 74% over the previous year, and net profit of 59.32 million yuan, an increase of 399% over the previous year. The company expects net profit of 416 to 499 million yuan for the full year of 2017, an increase of 50% to 80% over the previous year. From 1 to 3Q17, the company's revenue increased sharply, mainly due to the merger of Zhejiang Shuxin and Foshan Shuxin and increased trade; investment income increased 863% year over year, mainly due to the sale of shares held in Fuxiang Pharmaceutical. Trends The pesticide business is expected to gradually improve, and the pharmaceutical business is expected to develop rapidly. The company's pesticide business mainly provides customized production of intermediates for overseas agrochemical enterprises. Benefiting from the end of inventory removal by overseas agrochemical companies and the recovery of the global pesticide market, the company's pesticide chemical business is expected to continue to improve. After the company acquired Zhejiang Shuxin and Foshan Shuxin, it realized a vertically integrated industrial chain from pharmaceutical intermediates and APIs to formulations. The pharmaceutical business is expected to develop rapidly in the future. The new materials business is progressing smoothly. On September 20, the company announced that its holding subsidiary Yongtaigao will start trial production of a new year's project to produce 3,000 tons of lithium hexafluorophosphate. Furthermore, the company's annual output of 1,500 tons of color filter film materials for flat panel displays is expected to reach production by the end of this year or early next year. Invest in new projects such as OLED materials to create new profit growth points. The company plans to invest 95 million yuan in the construction of a 60-ton OLED electronic materials project with its own capital, while Zhejiang Shouxin Technology, a wholly-owned subsidiary, plans to invest 800 million yuan to build 19 APIs and 600 million tablets of traditional Chinese medicine extraction projects. The two projects are expected to increase annual revenue of 173/3.14 billion yuan and net profit of 0.42/407 million yuan after full delivery. Earnings Forecast We keep our 2017/18 earnings forecast unchanged. Valuation and recommendations Currently, the company's stock price corresponding to the price-earnings ratio for 2017/18 is 30/28x, respectively. We maintain our recommended rating and target price of RMB 18.50, which is 27.76% higher than the current stock price. The target price corresponds to 2017/18 38/36x P/E. The production progress of the risky new materials business fell short of expectations, and the development of the pesticide and pharmaceutical business fell short of expectations.