2017 results fell short of expectations Dier Hanyu announced 2017 results: operating income of 780 million yuan, up 2.6% year on year; net profit attributable to parent company was 160 million yuan, down 16.1% year on year, corresponding to earnings of 0.48 yuan per share. The 2017 dividend rate was 33.3%. 2018Q1 expects net profit attributable to the parent company to decrease 46%-40% year over year. The company has good product competitiveness in the washing machine drain pump market, and its high profitability is being weakened: 1) Through new product iterations in 2017, export gross margin remained stable. However, in 2018Q1, due to the sharp appreciation of the RMB against the US dollar, the profitability of the export business was clearly affected, and performance declined sharply. 2) The gross margin of domestic sales fell 4.7pct to 37% year on year in 2017, mainly due to the fact that the Chinese washing machine market has formed an oligopoly, the bargaining power of Chinese customers is stronger than that of overseas customers, and the rise in raw material costs in 2017 was not fully transferred. In 2017, the company's gross margin gradually declined. By 2017 Q4, the gross margin had been reduced to 38%, down 5.3ppt from the previous year. Affected by this, the company's 2017 Q4 net profit margin was only 13%, significantly lower than the previous level. The 2018Q1 net profit margin is also expected to drop to ~ 14%. Development trends The profitability of washing machine drain pumps will face challenges. In the past, the company relied on unique product competitiveness to maintain the gross profit margin of washing machine drain pumps. However, the concentration of downstream customers is high, and gross margin is under pressure to decline in the context of RMB appreciation and rising raw material costs. The pace of development of the new business is lower than expected: 1) In 2017, the revenue of the dishwasher washing cycle pump fell 20% year on year to 81.01 million yuan, indicating that no significant new customers have been acquired yet. 2) Smart spa toilets, industrial robots, and electric vehicle components currently do not account for significant performance, and future business growth remains to be seen. Earnings forecasts fell short of expectations. We lowered our earnings per share forecasts for 2018 and 2019 by 19% and 19% from RMB 0.52 and RMB 0.6 to RMB 0.43 and RMB 0.48, respectively. Valuation and recommendations Currently, the company's stock price corresponds to 29.1x 2018e and 25.6x 2019e P/E. We maintained a neutral rating, but lowered our target price by 10.05% to RMB 12.80, which is 3.23% higher than the current stock price. Risk market competition risk; risk of market demand fluctuations.