Incident: The company released its annual report. In 2017, it achieved operating income of 7.433 billion yuan, a year-on-year increase of 27.08%, net profit to mother of 1,136 billion yuan, an increase of 77.55% year-on-year, and net profit after deducting 637 million yuan, an increase of 15.76% over the previous year. Key investment points: The performance is basically in line with expectations, and financial expenses and investment income have a great impact on the company's performance. Lithium began reporting in mid-August 2017, and the company achieved revenue of 7.433 billion yuan for the whole year, an increase of 27% over the previous year, maintaining a good growth trend. The company's financial expenses reached 363 million yuan in the current period, an increase of 257% over the previous year, mainly due to increased interest expenses and exchange losses due to increased bond issuance and long-term loans. Income tax expenses for the current period were -2.6747 million yuan, compared to 103 million yuan for the same period last year. The current period confirmed that the accumulated deferred income tax assets related to losses in previous years were not covered, and income tax expenses were reduced by 146 million yuan accordingly. The current investment income was 434 million yuan, a sharp increase of 620% over the previous year. This included reducing the shareholding of Jianrui Woneng to achieve investment income of 226 million yuan, selling Fenghua Hi-Tech and Xingyuan Material shares to achieve revenue of 28.54 million yuan, and the acquisition of 10% of China Lithium's original shares adding 140 million yuan at fair value. During the reporting period, the company calculated a goodwill impairment of 85 million yuan, of which due to investment in Changyuan and Eagle, the company maintained a steady operating trend, eliminated many financial uncertainties, and more clear future statements. Business expansion affects both lithium and lithium profits, and all subsidiaries in the electric vehicle-related materials business have bright spots. The company's electric vehicle-related materials achieved revenue of 2,038 billion yuan in 2017, with a year-on-year increase of 36%. The gross margin reached 39.51%, an increase of 1.45 percentage points over the previous year. The company's annual report clearly mentioned that it was due to new materials from China Lithium and the high gross margin. In the first three quarters, China Lithium New Materials achieved revenue of 312 million yuan and net profit of 104 million yuan. In August-December, China Lithium consolidated revenue of 222 million yuan, net profit margin was lower than the level of the previous three quarters. We believe that China Lithium's gross margin remained high, and the increase in purchase costs for new production lines caused China Lithium's consolidated net profit margin to decline. Revenue from electric vehicle related businesses other than China Lithium increased 21% year over year, achieving relatively rapid growth. Changyuan Electronics' net profit increased 24% year-on-year to 104 million yuan. During the reporting period, it passed reviews and approval reports from Volkswagen and other manufacturers, and passed BYD's certification in the NEV market. Changyuan Huasheng electrolyte additives achieved sales volume of 22.624 million tons, a year-on-year increase of 29%, net profit of 57.45 million yuan, a year-on-year decrease of 14%. The Taixing plant was successfully put into operation, achieving a production capacity of 5,800 tons of electrolyte additives. Production capacity was not released throughout the year, and overseas customer Mitsubishi contributed to a significant increase in overseas sales. Changyuan Weian's automotive electronics promotion continued to advance, and automotive micromotor customers (domestic) achieved sales growth of more than 20%. After foreign customers, France's NTANHUA, the leading automotive micromotor company, Japan's MABUCHI, completed the first audit. Yuntaili's chip testing business has started, and the level of testing technology has improved dramatically. The gross margin of the company's smart factory reached 52.29% during the reporting period, an increase of 4.17 percentage points over the previous year. The gross margin of Yuntaili and Eagle all increased. In 2017, Yuntaili achieved revenue of 1.38 billion yuan, up 26% year on year, and net profit of 233 million yuan, up 17% year on year. Wu Qiquan, chairman of Yuntaili, said in an interview that R&D investment in chip testing projects in 2017 was high. Currently, chip automation test equipment for core customers has been successfully delivered, marking a significant improvement in Yuntaili's automated testing technology level, and the full advancement of various sound and photoelectric testing solutions. During the reporting period, the company acquired Oppy, a Finnish automation equipment company. The company is currently a leader in robot-assisted testing technology platforms, is in a leading position in building smart factories, and has strong complementary effects with Yuntaili. The performance of Changyuan and Eagle fell short of their performance promises and was better than previous market expectations. Changyuan and Eagle achieved net profit of 103 million yuan in the first three quarters, achieved net profit of 192 million yuan for the whole year, and net profit of 176 million yuan after deduction. The company has not fulfilled its previous performance promises. Changyuan and Eagle promised net profit of not less than 150 million yuan and 200 million yuan respectively in the 2016 and 2017 consolidated statements, with a total net profit of not less than 350 million yuan. Actual results were net profit after deduction of 156 million yuan and 176 million yuan respectively for 2016 and 2017, totaling 332 million yuan. The total performance promise for 2017 and two years was not fulfilled. The amount of compensation to the company was 62 million yuan. Changyuan and Eagle Marketing have integrated across product lines, organically integrating the markets for many products such as automated cutting beds and hanging systems, which is more conducive to obtaining orders. During the reporting period, the promotion and implementation of the Heying Smart Factory Program showed initial results. A total of 2 key projects and model factories were carried out and implemented. According to statistics from the China Sewing Machinery Industry Association, the cumulative sales volume of industrial sewing machines in 2017 was 4.2541 million units, an increase of 24% over the previous year. The textile automation industry developed rapidly, and revenue recognition and repayment progress in the company's initial promotion of overall solutions was slower than before. It is expected that this situation will improve in the future. The smart grid equipment business is progressing steadily, and overseas markets are expanding smoothly. The revenue of the smart grid business increased 11.9% year-on-year in 2017. Costs rose due to rising raw materials, and gross margin fell 2.81 percentage points to 42.41%. In 2017, the company promoted integration once and twice, merging subsidiaries such as Changyuan Electric Power and Changyuan High Energy into Changyuan Shenrui. Changyuan Shenrui's promotion of new industries and products has been very effective. The market share of smart equipment industries such as charging piles has further increased, and primary and secondary integration and complete tenders rank among the top in the distribution network industry. Overseas direct sales promoted the construction of a systematic platform, comprehensively complied with the latest overseas requirements, and won the general contract for the Angola project. Profit forecast and investment rating: The prerequisite for the transfer of 75% of Changyuan Electronics' shares is that Wall Nuclear Materials transfers 74 million shares to Shandong Kexing. The share transfer has not yet been fully settled. Based on prudential principles, the profit forecast still takes into account the combined statement of Changyuan Electronics, and the transfer of Changyuan Electronics' investment income is not yet considered. Net operating profit for 2018-2020 is estimated to be 9.5 billion yuan, 12.7 billion yuan, and 1.67 billion yuan, respectively, without taking into account the market value of financial assets at hand. The PE corresponding to net operating profit in 2018-2020 is 24 times, 18 times, and 14 times, respectively. The company's 2018-2020 EPS is 0.91 yuan, 1.16 yuan, and 1.46 yuan, respectively, and the corresponding 2018-2020 PE is 20 times, 16 times, and 12 times, respectively. After the 75% share transfer of Changyuan Electronics, investment income is calculated according to the Equity Law. The equity transfer fund will reduce the company's financial expenses, have less impact on operating profits, and at the same time add about 800 million yuan in investment income. Maintain a “buy” rating. Risk warning: risk of drastic price reduction for wet diaphragms; production line construction and capacity investment progress falling short of expectations; smart factory order delivery falling short of expectations; smart grid equipment bidding falling short of expectations; Changyuan Electronics equity transfer falling short of expectations. Risk of impairment of financial assets.