Event description: On the evening of October 29, Nikkai Intelligence released its third quarter performance report. The company's net profit attributable to owners of the parent company for the first three quarters of 2018 was 103 million yuan, up 46.40% year on year; operating income was 2,681 billion yuan, up 48.58% year on year. Q3 revenue growth in a single quarter was steady, and gross margin increased sharply month-on-month. The company achieved operating income of 853 million yuan in a single quarter in 2018, an increase of 8.3% over the previous year. Revenue growth was steady after completing the acquisition of Longshang Technology and Xinxuntong in the first half of the year; net profit was 53.99 million yuan, up 29.3% year on year, mainly due to the sharp increase in gross margin in Q3 in the single quarter. The company's gross margin for the third quarter increased 8 percentage points month-on-month to 25.7%, and also increased by nearly 7 percentage points over the third quarter of last year. The company launched the world's first intelligent cloud module and AIoT mobile intelligent computing terminal in the first half of the year. Through its technical capabilities, it occupies a high position in the value chain of IoT modules and terminals, and is expected to further enhance its profitability through high-end products in the future. The IoT business is progressing smoothly. Longshang Technology and Xinxuntong have plenty of orders. Through the acquisition of Longshang Technology and Xinxuntong, a stake in Ayla in the US, and the establishment of a joint venture, the Internet of Things strategy set by Nikkai Intelligence since 2017 has progressed smoothly, and has now formed a complete “cloud-plus” industrial chain layout. In September, Silicon Communications won the bid for Unicom's 4G IoT public communication module, with a bid amount of about 50 million yuan; in October, Longshang Technology and China Mobile IoT signed a framework contract for the procurement of all modules, with a contract limit of 200 million yuan. With the rapid maturation of the module industry chain, there are plenty of orders from M&A IoT companies, and related applications are being implemented at an accelerated pace, laying a solid foundation for the continuous release of performance. The promise to underwrite employee holdings increases, demonstrating that the company's value is underestimated and development confidence. Since the beginning of this year, the company's stock price has declined simultaneously with the market, and the company's growth has gradually shown valuation advantages. Recently, Shanghai Runliangtai, the company's controlling shareholder's unanimous activist, issued an initiative to all employees of the company to increase their holdings of the company's shares and promised to cover the losses caused by the company's employees due to the increase in holdings. At the same time, Runliangtai itself also increased its holdings of the company by a total of 3.418,400 shares in accordance with the August shareholding increase plan. On the one hand, this move shows the relatively underestimation of the company's value, and also shows the confidence of senior management in the future development of the IoT industry under the premise that the IoT industry is developing rapidly. Investment suggestions: The company's 2018-2020 revenue is expected to be 5.334 billion yuan/6.879 billion yuan/8.763 billion yuan, and earnings per share of 0.74 yuan/1.08 yuan/1.51 yuan respectively, corresponding to the current stock price PE of 22.6 times /15.4 times/11.0 times, respectively, maintaining an increase in holdings rating, with a target price of 25 yuan. Risk warning: module competition intensifies; acquisition companies increase the risk of impairment of goodwill.