Event description: Heong Si Zhuang released the 2018 interim results report on the evening of August 16. The company achieved operating income of 2.41 billion yuan in the first half of the year, an increase of 278.34% over the previous year; net profit attributable to owners of the parent company was 180 million yuan, an increase of 258.4% over the previous year. Orders for self-organizing networks were gradually increased. During the reporting period, the military and police business supported high performance growth. During the reporting period, the company strengthened integrated communication and business development, grasped development opportunities in the military and police market, and business orders grew strongly. For the self-networking business alone, the company signed a total of 2.5 billion yuan in orders in the first half of the year, and is expected to gradually confirm revenue in the second half of the year. We believe that military and police use are the most critical part of domestic production substitution, and that the market will also be the fastest and most stable implementation area in Beidou. According to estimates, its market size will reach 39.5 billion by 2020, and there is obvious room for growth. Meanwhile, self-organized networking products can be widely used in military, public safety, emergency dispatch, etc., and will be the first to be applied. As the company's orders continue to be confirmed, the company's future performance will be greatly enhanced. With Beidou's high-precision business as the core, achieve a comprehensive layout of the industrial chain, the company takes high-precision business as the core, comprehensively lays out the Beidou industrial chain, and focuses on the industry application market to achieve more blossoming. During the reporting period, the company further strengthened the development of high-precision core technology and launched the UA32 antenna supporting the L band, achieving a comprehensive breakthrough in Beidou high-precision chips, algorithms, boards, and antennas, and strengthening Beidou's competitive advantage in high-precision products. Implemented in industry applications, the company strengthened the global resource layout of large-scale markets such as surveying and mapping, precision agriculture, and machinery control. We believe that high-precision positioning is a key factor in the development of Beidou, and that the huge market space for industry applications provides a place for growth. At the same time, in the context of continuous market expansion, if Beidou is to achieve “integration” until it “catches up” with GPS, it needs to show a higher “cost performance ratio” in upstream basic devices. On the basis of the layout of the entire industry chain, the company takes high-precision business as the core and achieves a breakthrough in the industry application market, which will create potential profit growth points for its development. Profit forecasting and investment advice companies have achieved stable implementation in special fields on the basis of the entire industry chain layout, and gradually expanded to the industry market. With the continuous strengthening of core technology, the company's various businesses are expected to enter a period of explosion. We expect the company's net profit for 2018-2020 to be 420 million yuan, 564 million yuan, and 695 million yuan, corresponding to EPS of 0.56 yuan, 0.76 yuan, and 0.94 yuan, and corresponding PE of 30.3 times, 22.6 times, and 18.3 times. For the first time, it will be covered by the “increase in holdings” rating, with a target price of 22 yuan. Risk warning: The autonomous network business space is limited; the launch of the Beidou satellite falls short of expectations.