Event: On October 29, 2018, the company released its three-quarter report. The company achieved operating income of 2,681 billion yuan in the first three quarters of 2018, up 48.58% year on year; net profit attributable to shareholders of listed companies was 103 million yuan, up 46.40% year on year; net profit after deducting non-return parent was 86 million yuan, up 134.54% from the same period last year. Opinion: The growth rate of performance in the third quarter slowed. The company achieved operating income of 2,681 million yuan in the first three quarters of 2018, up 48.58% year on year; net profit attributable to shareholders of listed companies was 103 million yuan, up 46.40% year on year; net profit after deducting non-return parent was 86 million yuan, up 134.54% from the same period last year. Looking at the third quarter alone, the company achieved operating income of 853 million yuan, an increase of 8.28% over the previous year, a growth rate of 95 pct, a month-on-month decrease of 95 pct, net profit of 53.9941 million yuan, an increase of 29.35% over the previous year, and a year-on-month decrease of 13 pct in growth. Gross profit has improved markedly, and profitability has increased. The company's overall gross profit margin was 20.60% in the first three quarters, a decrease of 0.11pct over the same period last year, and the gross margin declined slightly. Mainly, the company achieved a merger with Silicon Communications in March. The gross margin of the wireless module end was low, which had an impact on the company's overall gross margin. In terms of three fees, the company's sales management and financial expenses in the first three quarters were 5.44%, 5.70%, and 1.54%, respectively. The sales expenses and management expenses ratio dropped significantly, and the company's profitability improved. The 1.6 pct increase in financial expenses over the same period last year was mainly due to the company's ability to combine Xinxuntong and Longshang Technology to raise capital to generate a large amount of short-term loans. Looking at a single quarter, the company's gross margin was 25.70%, an increase of 8.1 pct over the previous month, a slight increase in the sales expenses ratio, an increase of 2.15 pct over the previous month, and the management expense ratio improved. The company invested 105 million yuan in R&D expenses in the first three quarters, accounting for 3.92% of revenue. R&D expenses are mainly due to the inclusion of Xinxuntong and Longshang Technology in the consolidated report this year, and the company's R&D expenses in terms of modules and IoT cloud platform services increased. The IoT industry has exploded, and the company's growth rate is expected to be maintained. The company focuses on the strategic advantage of “cloud and end”, and “cloud” uses the advantages of Ayla to promote localization. On the “end” side, the “end” side, completed the acquisition of Xinxuntong and Longshang Technology in 2017, leveraging the technical advantages of IoT software and hardware, and providing telecom operators and vertical industry customers with IoT wireless communication modules, IoT cloud platforms, and intelligent IoT end-to-end solutions. We believe that the company is in the upper reaches of the IoT industry chain, benefiting from the increase in the number of downstream IoT scenarios and connections. The company Longshang Technology and Xinxuntong occupy 30% of the global market share in terms of end, and the company will grow rapidly on the revenue side in the future. Combined with the cloud strategic layout, profitability will also maintain steady growth. Conclusion: We expect the company's EPS in 2018-2020 to be 0.70, 0.92 and 1.17 yuan respectively, with growth rates of 115.10%, 31.25% and 27.05%, respectively. The PE corresponding to the current stock price is 24X, 18X, and 14X respectively, giving the company a “recommended” rating. Risk warning: The development of the Internet of Things fell short of expectations; the decline in gross margin was higher than expected.