Matters: Triangle Tire (601163) released its report for the third quarter of 2018 on October 27, 2018. In the first three quarters, the company achieved operating income of 5.536 billion yuan, -8.26% year-on-year; net profit of 330 million yuan, -10.57% year-on-year. Comment: Tire sales are under pressure, and exchange earnings combined with lower raw material prices are driving performance. In 18Q3, the company achieved operating income of 1,857 billion yuan, -4.89% year-on-year; net profit of 129 million yuan, +32.93% year-on-year. Due to weak demand due to declining prosperity in the transportation market, tire sales volume in the single quarter of 18Q3 was -6.28%, and tire business revenue was 1,849 billion yuan, -5.01% yoy. The gross profit margin of the 18Q3 company was 20.81%, +1.53pct year on year, mainly due to the central decline in Tianjiao prices and the increase in tire product prices (the average sales price in a single quarter was 433.12 yuan/piece, a slight increase of 1.35% over the previous year). The increase in exchange earnings in the third quarter led to a sharp reduction in financial expenses (from 39.07 million yuan in the same period last year to -26.05 million yuan), driving the net interest rate of 18Q3 companies to +1.97 pct year on year to 6.94%. Domestic production capacity is steadily expanding, and volume is expected to be achieved in 2019. The company currently has an annual production capacity of 22 million tires, including 6 million commercial vehicle tires, 16 million passenger car tires, 230,000 oblique engineering tires, 150,000 radial engineering tires, and 1500 radial engineering giant tires. It has more than 5,000 product specifications and varieties, leading production capacity and product structure in the country. The company's listed fund-raising projects Huamao Phase II and Huayang Phase II projects are scheduled to be put into operation in the second half of 2018. At that time, production capacity of 1 million high-performance commercial tires and 4 million high-performance passenger tires will be added. The new production capacity is expected to reach production volume in 2019, which is expected to provide a basis for the company's performance release at that time. A breakthrough in trade difficulties can be expected, and we are optimistic about the company's long-term development. The company's US factory project is being planned. The first phase of the high-performance passenger car tire project with an annual output of 5 million tires is scheduled to begin this year and be put into operation in 2020; the second phase of the high-performance commercial vehicle tire project with an annual output of 1 million tires is scheduled to begin in 2020 and put into operation in 2023. The expansion of the company's production capacity in the US is expected to avoid trade barriers such as high tariffs, reduce potential export trade risks, further optimize the global market layout, and increase the company's penetration rate into the US and surrounding markets. We believe that in the future, the company is expected to use its innovative R&D advantages and leading level of intelligent manufacturing to launch competitive differentiated products such as fireproof and flame retardant tires one after another, and we are optimistic about the company's long-term performance development. Risk factors: 1) risk of international trade friction; 2) risk of raw material price fluctuations; 3) production capacity release falls short of expectations. Maintain a “buy” rating. Under the impact of the trade war and weak downstream demand, the company's short-term growth was hampered. The net profit forecast for 2018-2020 was lowered to 4.43/5.31/666 billion yuan, the corresponding EPS was 0.55/0.66/0.83 yuan (the original forecast was 0.74/0.87/1.01 yuan), and the target price was lowered to 17 yuan (corresponding to 30 times PE in 2018). However, we are still optimistic about the long-term development of the company under the combination of capacity expansion and overseas layout. Maintain a “buy” rating.