1. Overview of the incident Taiji Industrial released three quarterly reports: in the first three quarters, it achieved revenue of 11.226 billion yuan, an increase of 35.19% over the previous year; realized net profit of 368 million yuan, an increase of 23.92% over the previous year; after deducting non-net profit, it was 359 million yuan, an increase of 31.05% over the previous year. 2. Analyze and judge the increase in R&D investment, the calculation of equity incentive expenses, and performance pressure 1. (1) The company's performance continued a steady growth trend. In the third quarter, it achieved revenue of 3,543 billion yuan in a single quarter, an increase of 18.15% over the previous year, and achieved net profit of 163 million yuan to mother, an increase of 25.38% over the previous year. (2) The consolidated gross margin for the first three quarters was 12.72%, up 4.92 percentage points year on year; (3) the cost ratio for the period was 4.72%, down 3.44 pcts year on year. Among them, sales expenses rate/ management expense rate/ financial expense ratio were 0.36%/3.12%/1.24%, respectively, down 0.07/3.04/0.33 pcts year on year. 2. The increase in the company's performance is mainly due to: 1) the subsidiary Eleven Technology Hefei Changxin and other EPC turnkey projects accelerated construction, and general contracting revenue increased dramatically; 2) the subsidiary Taiji Semiconductor continued to improve. During the reporting period, the transfer of shares between the controlling shareholder and the Big Fund was completed. The strategic investment of large funds will help develop the company's EPC+ closed testing business. Domestic semiconductors are at the peak of factory construction, and the company's EPC orders continue to land. The company's EPC turnkey business is dominated by the subsidiary Eleven Technology. As the domestic semiconductor industry ushered in a peak in factory construction, the company's EPC orders continued to grow. According to the company's announcement statistics, since the beginning of 2018, the amount of new EPC contracts signed by the company has reached 145 billion yuan. The successive execution of large EPC orders laid the foundation for the company's subsequent performance release. Leading memory packaging and testing technology is expected to benefit from the development of the domestic storage industry 1. The company's sealing and testing business is mainly carried out by its subsidiaries Haitai Semiconductor and Taiji Semiconductor. The holding subsidiary Haitai Semiconductor is a joint venture between the company and SK Hynix. It mainly seals and tests DRAM products for SK Hynix. In the field of DRAM packaging and testing, Haitai Semiconductor closely follows SK Hynix's steps and has reached the leading international level of technology. According to the company's disclosure in its semi-annual report, it already has 16nm DRAM encapsulation and testing technology. Since Haitai Semiconductor uses a “full cost+fixed income” profit model, it is expected that its performance will remain at a relatively stable level. 2. Taiji Semiconductor, a holding subsidiary, has shown a gradual improvement through continuous improvement in business capabilities and effective cost control. At present, Taiji Semiconductor has successfully been selected as a qualified supplier for Hefei Ruili's memory business. It is expected that after the expansion of the Hefei Ruili Storage business, the company's sealed testing business will usher in opportunities. 3. Investment recommendations estimate that in 2018-2020, the company's EPS will be 0.26/0.36/0.44 yuan, respectively, and the current stock price corresponding to PE will be 21/15/12 times, respectively. According to Wind, the company's current valuation PE (TTM) is 24.6 times, which is slightly higher than the company's lowest valuation of 23.1 times in the last 12 months, maintaining a “recommended” rating. 4. Risk warning: 1. The EPC project fell short of expectations; 2. The sealed testing business fell short of expectations.