The investment recommendation is that we downgrade Galaxy Electronics' rating to “neutral” and reduce the target price by 20% to 7.20 yuan, corresponding to 18/19e 36x/30x P/E. The reasons are as follows: revenue decreased year over year and profit margins declined. In 2017, Galaxy Electronics achieved operating income of 1,624 billion yuan, YoY -18.0%; net profit to mother of 187 million yuan, YoY -39.6%; gross margin decreased 5.9ppt to 30.7%, and net profit margin decreased by 4.1ppt to 11.5%; lower than the performance report and our expectations. Among them: 1) Digital TV smart terminal revenue YoY -24%, accounting for 47%, gross margin -10ppt to 14%, mainly due to high upstream raw material prices; 2) smart electromechanical revenue YoY -7%, accounting for 40%, gross margin -2ppt to 51%; 3) Electric vehicle key component revenue YoY -29%, accounting for 10%, gross margin -14ppt to 30%, mainly due to NEV subsidy policy adjustments and increased industry competition; 4) Management expenses ratio +1.2ppt to 13.8%, of which R&D investment YoY +20%, accounting for +2.5ppt to 8.0% of revenue; 5) Other revenue was 64 million yuan, an increase of 41 million yuan over previous year's government subsidies. In 2017, neither Fujian Junpeng nor Luoyang Jiasheng fulfilled their performance promises. Strategic focus+transformation and upgrading, but there is great uncertainty about short-term performance recovery. 1) Military mechatronics: The products are mainly used in various types of military special vehicles, and are expected to remain steady in the next three years; 2) New energy vehicles: Currently, the industry is shifting from policy driven to market drive. Fujian Junpeng is expected to resume rapid growth, but Luoyang Jiasheng is uncertain; 3) Set-top boxes: The company will rely on existing teams to actively introduce and cultivate new projects around smart home hardware terminals, but the uncertainty of raw material prices still has a significant impact. Currently, the company's valuation level is still high. Under a neutral assumption, we expect the company's net profit CAGR of 20% for the next three years. Currently, the company's stock price corresponds to 33.4x/27.8x 18/19EP/e. The valuation level is relatively reasonable but still high. What is our biggest difference from the market? The company has strong comprehensive strength and good prospects for medium- to long-term development, but there is great uncertainty about improving short-term performance, and the market does not fully understand this. Potential catalysts: 1) The pressure to increase the price of electronic components has been relieved; 2) Fujian Junpeng and Luoyang Jiasheng showed signs of recovery in performance. Profit forecast and valuation We adjusted our revenue and gross margin forecasts, and lowered our 18/19 net profit forecast by 7.5%/10.2% to 226 million yuan/272 million yuan, YoY +20.8%/+20.4%. The target price was lowered by 20% to 7.20 yuan, corresponding to 18/19e 36x/30x P/E, with a potential increase of 9%. Downgraded the rating to “neutral.” Risk: Uncertainty about changes in set-top box costs; competition in the NEV charging pile market intensifies.