2017 was in line with expectations. 1Q18 fell short of expectations. Fangzheng Electric announced 2017 and 1Q18 results: 2017 operating income of 1.32 billion yuan, +25.6% YoY; net profit attributable to the parent company was 132 million yuan, +11.8% YoY, corresponding to earnings per share of 0.29 yuan. 1Q18 had revenue of 326 million yuan, +29.5% YoY, net profit of 18.613 million yuan, -14.7% YoY. The company's 17-year performance was basically in line with the performance report. In 1Q18, as raw material prices rose more than expected, gross margin had a big impact, and performance fell short of expectations. Development trend 1Q18 The scale of revenue continued to expand, and the prices of natural gas and electronic components dragged down performance. The company's 1Q18 revenue continued to maintain a high year-on-year growth of nearly 30%. The company's main products developed steadily, while continuously expanding customers and increasing market share. However, due to the rise in raw material prices for natural gas and electronic components, Hynergy and Hi-Tech were under pressure, and the company's product structure moved downward, causing the company's 1Q gross margin to drop 2.7ppt to 19.4% year on year, dragging down performance. The company predicts an increase of -20% to +20% in the 1H18 performance range, corresponding to 0.45 to 68 billion yuan. Supported by its main performance, Hyanneng maintained a high level of R&D investment. Hyneng's net profit in 2017 reached 95.374 million yuan (up 21% year on year), far exceeding its performance promise of 8,400 and reaching 72.2% of net profit, which is the company's main source of profit. Hyna mainly benefited from the boom in the heavy gas truck market in '17. The price of natural gas in 1Q18 has begun to fall from a high level, but it is still more than 20% above the 1H17 level, and is expected to be adjusted to normal levels in the future. The company's R&D investment increased 33% in 2017 to 62 million yuan, and its share of revenue increased by 0.26ppt to 4.68%. The early R&D investment for products such as flat wire motors was large, and it is expected that R&D expenses will remain high. Keep pouring in, and wait for new customers and new products to deliver results. The company continues to expand and develop customers and products, and actively explores product and brand upgrade paths. Customers are also gradually penetrating upward. Upfront investment will eventually receive profit feedback in the medium to long term. At the same time, the company's fund-raising projects will release increased performance after reaching production in 19 years. Profit forecast Since Hyneng's performance this year may be affected by the heavy gas truck market, and the company's R&D investment is expected to remain high, we lowered our 2018/19e profit forecast by 8.4%/4.3% from 145/173 million yuan to 133/166 million yuan. The valuation and recommended company's current stock price corresponds to 29.3/23.5 times P/E in 18/19. Maintaining a neutral rating, corresponding to profit forecast adjustments, we lowered the target price by 8% to 11 yuan, corresponding to 37.9/29.7 times P/E in 18/19, with 27% margin compared to the current stock price. Risky natural gas trucks fell short of expectations, and raw material prices continued to rise.