Event: Excalibur Co., Ltd. released its 2017 three-quarter report. During the reporting period, it achieved operating income of 1,283 billion yuan, an increase of 34.43% over the previous year, and realized net profit attributable to shareholders of listed companies of 84 million yuan, a year-on-year decrease of 17.88%; in the third quarter of 2017, it achieved operating income of 473 million yuan in a single quarter, an increase of 34.30% over the previous year, and realized net profit attributable to shareholders of listed companies of 27 million yuan, a year-on-year decrease of 5.21%. Opinion: Powder coatings are experiencing a downturn. During the reporting period, it achieved operating income of 1,283 billion yuan, an increase of 34.43% over the previous year, and realized net profit attributable to shareholders of listed companies of 84 million yuan, a year-on-year decrease of 17.88%; in the third quarter of 2017, it achieved operating income of 473 million yuan in a single quarter, an increase of 34.30% over the previous year, and realized net profit attributable to shareholders of listed companies of 27 million yuan, a year-on-year decrease of 5.21%. The main raw materials of the company's products are PTA and NPG. After the price of NPG bottomed out in early 2016, the price rose sharply, and the company's requirements for NPG were high, mainly imported supplies. The price of NPG also increased while the price of OEM products rose, so the company's revenue increased year on year, but since the increase in product prices was lagging behind, at the same time, the increase in NPG was greater than the increase in product prices, leading to a decline in product gross margin. The integration of the powder coating industry is imminent. Excalibur currently has a market share of more than 27% in China. It is the largest polyester resin manufacturer in China. Both gross margin and net profit margin are in a leading position in the industry. Although the company's current gross margin is declining, it still has an advantage over other polyester resin companies. At present, the polyester industry as a whole is still a relatively profitable industry. The production capacity gap between the top ten in the industry is large, especially between the top 5 and the top ten, all of which are small in size. Overall, the industry has not been significantly integrated. As the price of raw materials rises, the living space of small enterprises will be further reduced. At the same time, as environmental protection becomes stricter, large manufacturers with scale effects will have an innate advantage in environmental protection. Under the general environment of supply-side reforms in the country, the company is actively deploying on the raw materials side. The commissioning of the domestic raw material neopentylene glycol is expected to reduce costs and increase gross profit margins; setting up branches overseas to open up overseas channels and provide new profit growth points. The layout during the difficult period of the industry is expected to further increase the company's market share and provide a solid foundation for future development. The military industry has become a bright spot. In the military field, Zhongxing Weiye will advance hand in hand with Jiaye Airlines, and complete the gradual transformation from small to large in aerospace and other fields. The development trend of the company's dual main business will not change in the future. With the gradual integration of the two main businesses, 1+1 will have a catalytic effect greater than 2. Conclusion: Excalibur Co., Ltd. is the largest leading enterprise in the polyester resin industry for powder coatings in China. The industry is affected by rising raw material prices and stricter environmental protection. There are integration expectations. Although the process will be long, it will definitely be realized. The simultaneous acquisitions of Jiaye Airlines and Zhongxing Weiye are leading technology, and stable profits are expected to accelerate development. We expect the company's operating income from 2017 to 2018 to be 1,714 million yuan, 2.188 billion yuan and 2,571 billion yuan respectively. Net profit attributable to shareholders of listed companies is 170 million yuan, 270 million yuan, and 410 million yuan, respectively, per share The earnings were 0.20 yuan, 0.32 yuan, and 0.47 yuan respectively, and the corresponding PE was 39X, 24X, and 16X, respectively. We are optimistic about the company's future development and maintain the “Highly Recommended” rating. Risk warning: The process of industry integration fell short of expectations, and the expansion of new business areas fell short of expectations.