3Q18 results fell short of expectations, and Dinghan Technology announced 1-3Q18 results: 1-3Q operating income of 905 million yuan, up 11.8% year on year; net profit attributable to parent company was 31 million yuan, up 51.8% year on year, corresponding to profit of 0.06 yuan per share. 3Q18's revenue was 312 million yuan, down 7.1% year on year; net profit to mother was 2.58 million yuan, down 78.7% year on year, mainly due to lower profitability than expected. Both gross and net profit margins declined, but cash inflows improved substantially. The 3Q18 company's comprehensive gross margin was 34.5%, down 1.6 ppt year on year, but management efficiency improved, and the sales/management expense ratio decreased slightly by 0.5/0.3ppt to 15.3%/15.2%; the contraction of the 3Q18 financing environment led to an increase of 1.2ppt to 4% of the company's financial expenses ratio; and the 3Q18 net profit margin fell 2.8ppt to 0.8%. In 3Q18, the company's operating cash inflow was 16 million yuan, an increase of 95 million yuan over the same period last year, which improved. Development trends The Development and Reform Commission recently restarted the approval of urban rail transit plans. On August 12, the Development and Reform Commission approved the Suzhou Urban Rail Transit Phase III Construction Plan (2018-2023). A total of 4 projects were approved, with a total length of 137.4 kilometers, indicating that after the “Document No. 52” was issued, the NDRC has officially restarted the urban rail approval process, which had been stagnant for nearly a year. With the subway's completion mileage rising sharply in 2019/2020, we look forward to the company's performance next year. Focus on the company's equity pledge risk in the short term. The company's overall pledge ratio is 40.3%, which is a high level among A-share listed companies; mainly due to the company's actual controller and co-actor Xinyu Dinghan (total shareholding ratio 36.7%, cumulative pledge ratio is 72%), we urge investors to pay attention to related risks. Profit forecast Considering that the company's performance in the first three quarters fell short of expectations, we lowered our 2018/19e profit forecast by 39%/35% from 0.32/0.41 yuan to 0.20/0.27 yuan. Valuation and recommendations The company's current stock price corresponds to 27/20 times P/E in 18/19. The recommended rating is maintained considering that the increase in railway completion mileage in 2019 will bring about a return to profit in the terrestrial power supply business. Considering the reduction in profit forecasts, we lowered our target price by 29% from 9.55 yuan to 6.75 yuan, corresponding to 25 times P/E in 2019, and there is room for 25% increase compared to the current stock price. The consolidation of venture subsidiaries fell short of expectations.