The 2017 results were slightly lower than expected, and the 2Q guidance fell short of market expectations. Fenda Technology announced 2017 results: operating income of 3.21 billion yuan, up 52.6% year on year; net profit attributable to the parent company was 443 million yuan, up 15.1% year on year, and 5% decrease from the rapid report profit. Mainly because the increase in raw material prices last year had a big impact (packaging materials, NdFeB, batteries, components, etc.), and exchange losses also affected profits of around 30 million. At the same time, the company announced 1Q18 results: revenue of 640 million yuan, up 79.8% year on year; net profit to mother of 54.076 million yuan, up 20.5% year on year, of which exchange losses of 40 to 50 million were the main factors suppressing growth. The company predicts a 10-30% year-on-year increase in profit for the first half of the year, corresponding to a 4%-35% increase in Q2, which is lower than market expectations. The poor outlook for Q2 is mainly due to weak demand from Apple, rising upstream prices for speakers, US generators, etc., and the impact of exchange losses. Development trends The small metal parts business may face the risk of increased competition: the company acquired Apple's small metal parts supplier Fuchengda last year. Fuchengda performed well in Apple's three new models in the second half of last year. ASP doubled, and the annual revenue scale was 1.33 billion, an increase of 80% over 2016. Looking ahead to the second half of this year, Fuchengda's product numbers and ASP will increase, but against the backdrop of a slowdown in mobile phone sales and case demetallization, we are also seeing a risk of increased competition for small metal parts. The company also began expanding to metal parts such as headphones, electronic locks, heat dissipation, e-cigarettes, and medical care this year to cultivate new growth points. Smart speaker compatibility is progressing well, but terminal demand still needs to be observed: Fenda has been operating speakers for many years. It began to work with smart speakers such as Tmall Genie and Dingdong in the second half of last year. Smart speakers earned 1-2 billion yuan, accounting for about 20% of total speaker revenue. This year, subsequent models such as Tmall Genie are progressing well, and the scale of smart speaker revenue is also expected to more than double. However, since this year, the smart speaker market has not been as good as expected, and the Apple HomePod has failed to bring enthusiasm to the market, and acceptance by end consumers remains to be seen. Profit forecast Due to the risk that metal parts may face increased competition, we cut Opponda's 18/19 revenue by 18%/19%, and Fusheng by 3%/11%. The speaker business cut speaker revenue by 31%/35% in 18/19 due to the fact that the acceptance of smart speakers among end consumers remains to be seen. Taking into account the impact of exchange losses and raw material price increases, we lowered our 2018/19e profit forecast by 23%/30% from 0.58/0.79 to 0.44/0.56. Valuation and recommendations The company's current stock price corresponds to 21.7/17.4 times P/E in 18/19. Due to the decline in profit, we also lowered the target price by 20% from 14.5 to 11.6 yuan, corresponding to 26.4/20.7 times P/E in 18/19. There is 20.2% room compared to the current stock price, and the recommended rating is maintained. The development of risky smart speakers fell short of expectations, and competition for small metal parts intensified.