Key investment points The company's revenue for the first three quarters was +22.98% year-on-year. Non-recurring profit and loss caused the net profit of the parent company to decline year on year. In the first three quarters of 2018, the company achieved revenue of 801 million yuan, +22.98%; net profit of 55.3953 million yuan, -20.28% of the previous year; net profit of 55.393 million yuan, net profit after deduction of net profit of 498.369 million yuan, +15.05% year-on-year. The 3Q18 company achieved revenue of 320 million yuan, +22.12% year-on-year; net profit of 24.038 million yuan, +29.48% year-on-year; net profit after deduction of net profit of 21.9558 million yuan, +29.15% year-on-year. Net profit of -20.28% in the first three quarters was mainly due to (1) non-recurring profit and loss of 5,5584 million yuan in the first three quarters, -78.76% year-on-year, mainly due to -81.59% of government subsidies received in the first three quarters of 2018, which included current profit and loss; (2) Q3 amortization of equity incentive costs of 207.708 million yuan and increased management expenses. Gross margin remained stable, and cost control had some effect. The company's gross margin for the first three quarters was 22.74%, +0.56pct year on year, which was basically stable; net profit margin was 6.92%, -3.75pcts year on year, mainly due to the increase in expenses. In terms of expense ratio, the company's sales expense ratio for the first three quarters of 2018 was 0.93%, year-on-year -0.15pct; management expense ratio was 5.60%, year-on-year +1.31pcts, mainly due to the company's equity incentive costs of 20.77 million yuan during the reporting period; the financial expense rate was -0.25%, +1.14pcts year-on-year, and financial expenses +77.59% year-on-year, mainly due to loan interest income received 13 million yuan in the same period last year, reducing interest expenses for the same period last year. Continued investment in research and development, technology is at the leading level. In terms of R&D investment, the company continues to increase R&D investment. The R&D expenditure rate for the first three quarters of 2018 was 9.18%, +2.1pcts over the same period last year. In terms of technology, the company has gained market dominance in high-end lens products such as large magnification optical zoom and ultra-high definition. The company's products can achieve resolution from analog, 720P, 1080P to 4K and 8K, and optical zoom functions of 3 times to 55 magnification. In terms of patents, as of 2018H1, the company has obtained a total of 417 patents, including 4 US invention patents, 63 domestic invention patents, 291 utility model patents, and 59 design patents. The company plans to continue to invest resources in the future to maintain leading zoom technology and increase marketing efforts to consolidate the market position of the high-end zoom lens business in terms of both technology and sales. The growth rate of the downstream security industry is slowing down, and the company continues to maintain its leading position in the high-end security lens market and is growing with the industry. The company actively cooperates with leading downstream security manufacturers Hikvision and Dahua Co., Ltd., and received the “Strategic Cooperation Award” from Hikvision and Dahua Co., Ltd. in 2017. Affected by macro factors, the growth rate of the downstream security industry has recently slowed. The industry is expected to grow by nearly 10% in the future, and the company will grow with the industry. In terms of industry position, the company focuses on high-end security lenses. 18H1 security products accounted for 86.26% of revenue, zoom lenses accounted for 6.9% of global sales in 2017, and high-end zoom security lenses of 20-30 times or more accounted for 82.63% of sales, which is in an absolute leading position. Risk factors: Customer acquisition progress falls short of expectations, product yield falls short of expectations, and gross margin falls. Profit forecasts and valuations. The company is a traceable upstream target in the security field. It has excellent optical quality. Currently, production capacity is continuously expanded, and future revenue expansion and profit improvements can be expected. We forecast the company's EPS for 2018-2020 to be 0.48/0.78/0.96 yuan. In 2018, due to the large equity incentive expenses, the company's performance was not truly reflected. According to 28 times PE in 2019, the target price was 21.84 yuan, covering it for the first time, and giving it an “increase in holdings” rating.