Key investment events: The company released its 2018 semi-annual report. Net profit attributable to owners of the parent company for the first half of 2018 was 594632 million yuan, down 6.60% from the same period last year; operating income was 316 million yuan, up 15.14% from the same period last year; and basic earnings per share was 0.19 yuan, down 6.63% from the same period last year. The company's performance was stable, and the component business was driving growth. In the first half of 2018, the company achieved revenue of 316 million yuan, an increase of 15.14% over the previous year. Among them, the main business revenue was 311 million yuan, an increase of 15.53% over the previous year, mainly due to the inclusion of the subsidiary Changkang Environmental Protection in the consolidated report to increase the company's revenue by 52 million yuan; component product revenue increased by 23 million yuan, an increase of 16.95% over the same period last year. The company's net profit was 59 million yuan, a decrease of 6.60% over the previous year, mainly due to increased preparations for bad debts accrued in accounts receivable and preparations for falling inventory prices in the current period. The company's management expenses increased 9.72% year over year, mainly due to increases in research and development expenses, employee remuneration, depreciation expenses, etc. compared to the previous period. Net cash flow from operating activities decreased by 39.79% year-on-year, mainly due to increased tax, remuneration, and expenses. Net cash flow from investing activities decreased by 261.80% year on year, mainly due to increased fixed asset investment. Leading military high-end cable company, product structure optimization. With military business as its core, the company is a leading military high-end cable enterprise, and can provide completely independent full-link optical, electrical and thermal transmission solutions and products. The product line covers optoelectronic cables, optoelectronic components, photoelectric transmission components, FC optical fiber bus switching system node cards, cooling and cold plates, components and chassis, seawater desalination equipment, etc., mainly used in the five major military fields of aerospace, aviation, ships, electronics and weapons. Most of our customers are key enterprises and research institutes under the military industry group. In recent years, products have changed from single components to system-integrated components. The product lineage is becoming more and more complete, the structure continues to be optimized, downstream sales are good, and performance has maintained steady growth. Investment in R&D continues to increase, providing a guarantee for continued growth in performance. The company's R&D expenses continued to increase. In the first half of 2018, the company invested 24.3381 million yuan in R&D, an increase of 10.39% over the previous year, accounting for 7.71% of the company's revenue. In the first half of 2018, the company obtained 4 new invention patents, 9 utility model patents, and 2 software copyright registrations. As of the end of the reporting period, the company had 128 authorized patents, including 25 invention patents and 22 software copyrights. The company's research projects are commercialized and serialized according to equipment requirements, which is a potential growth point for the company's future performance. At the same time, technical reserves are made for the future development direction of the transmission field to ensure the use of equipment, thus ensuring the company's technological advancement within the industry. The prospects for the military desalination equipment market are improving, and the merger and acquisition of Changkang Environmental Protection was successfully completed. As the growth rate of military spending bottoms out and rebounds and the “maritime power” strategy continues to advance, demand for desalination equipment from downstream military customers continues to rise, and the prospects for the desalination equipment market are improving. The company completed the acquisition of Changkang Environmental Protection in the first half of 2017. Changkang Environmental Protection is a leader in military seawater desalination equipment. In particular, it has obvious advantages in the field of reverse osmosis desalination equipment. It mainly supplies navy ships, and its product market share is high. In the long-term production process, Changkang Environmental Protection has fully mastered the process technology and core parameters of reverse osmosis seawater desalination devices for military ships, and innovated the technology for second-grade reverse osmosis seawater desalination devices. Currently, a new generation of second-stage reverse osmosis seawater desalination devices are in the formalization stage. The high-end civilian goods sector continues to expand, and performance contributions are worth looking forward to. Since its establishment, the company has always focused on military products, and the gradual development of high-end civilian goods business in recent years has been a beneficial complement to the company's business structure. In January 2017, the company invested 35 million yuan to establish a wholly-owned subsidiary, Nanjing Quanxin Rail Transit Equipment Technology Co., Ltd., to provide photoelectric transmission cables and components, power devices, electronic and electrical products, and on-board electronic equipment and systems for rail transit, new energy, and civil aviation. During the reporting period, the company's locomotive cable market expansion progressed steadily, and has successively reached strategic partnerships with mainframe manufacturers and locomotive suppliers under CRRC Group. Its self-developed data line products have been successfully applied in the “Ninghe Intercity” subway project, breaking through the current monopoly of imported brand data cables in the high-speed rail, urban rail, and subway markets, and realized the replacement of imported products. In addition, the company has also responded positively to the national “Belt and Road” strategy. Currently, it has passed civilian product certification such as AS9100C-2009 aerospace quality system certification approved by the international aviation industry, China Classification Society factory certification, and IRIS (International Railway Industry Standard) quality management system certification. Investment suggestions: We expect the company to achieve net profit of 171 million yuan, 221 million yuan, and 275 million yuan respectively in 2018-2020, corresponding to the current share capital of 313 million shares, and earnings per share of 0.55, 0.71, and 0.88 yuan/share, respectively. Since the company's main product business is the military industry as the core sector, has complete qualifications, a stable market base, and strong barriers, the diversified layout of civilian goods is progressing steadily, maintaining an increase in holdings rating. Risk warning: Product development progress falls short of expectations; diversified business development falls short of expectations; market competition intensifies.