With the intention to acquire Shanghai Jiucheng Packaging, the business line is expected to expand again. The company announced on the evening of January 14 that it plans to acquire 43.015% of the shares of Shanghai Jiucheng Packaging Co., Ltd. held by Mr. Wu Rong, Mr. Lin Churan, and Mr. Miao Xinghua with their own capital of 215 million yuan. After the transaction is completed, the company will hold 43.015% of Jiucheng Packaging's shares, and Mr. Wu Rong, Mr. Lin Churan, Mr. Miao Xinghua, and Mr. Zhu Rongbing will hold 56.985% of Jiucheng Packaging's shares. Mr. Lin Wuhui, the controlling shareholder and actual controller of the company, holds 4.75% of the shares in the target company. This transaction constitutes a related transaction. We believe that the company's proposed acquisition of Jiucheng Packaging is another attempt at expanding the industrial chain. If the acquisition is successful, it is expected to bring considerable investment returns and enhance the company's performance. We expect the company's EPS from 2018 to 2020 to be 0.81/1.02/1.29 yuan, maintaining the “increase in holdings” rating. The target company has obvious advantages in segmentation, and its performance is growing significantly. Shanghai Jiucheng Packaging Co., Ltd. is a municipal high-tech enterprise specializing in polymer flexible packaging printing and polymer material composite manufacturing. The main products are divided into daily chemical packaging, food packaging, pet food packaging and industrial product packaging. For three years in a row, Jiucheng Packaging has had the highest market share in the cosmetic mask packaging segment in the printing and packaging industry. The products have the core competitiveness of soft packaging industry technology and a leading position in product quality. According to the audit data provided in the announcement, Jiucheng Packaging achieved revenue of 177 million yuan and net profit of 29.84 million yuan in 2017, revenue of 233 million yuan and net profit of 41.31 million yuan from January to October 2018. The performance growth momentum is remarkable. Pharmaceutical packaging industry integrators are involved in daily chemical packaging. The company is a leader in the high-barrier pharmaceutical packaging industry, with obvious channel advantages. In order to overcome the small variety of its own products, it has acquired Zhejiang Duoling Pharmaceutical Pack, Suzhou Qingyi Pharmaceutical Package, and Shijiazhuang Zhonghui Pharmaceutical Package separately through capital management, and the merger and acquisition has led to significant revenue growth. We believe that the company's proposed acquisition of Shanghai Jiucheng Packaging is an attempt by the company to enter the field of cosmetic packaging, which is expected to increase performance in the short term. At the same time, the medical and aesthetic packaging industry where Jiucheng Packaging is located is currently in the early stages of development, and the production process, raw materials, etc. are similar to the pharmaceutical packaging industry, so it is expected that there will be collaboration with the company's pharmaceutical packaging business in the future. At the same time, according to the company's third quarterly report, the construction of the company's IPO fund-raising project has been completed and put into normal use, and the production capacity has been expanded from 6,000 tons to 12,000 tons. The industry chain is expected to expand further. The company that maintains an “increase in holdings” rating is the only pharmaceutical packaging company listed on A-shares. The company's fund-raising project was completed in the third quarter, and the results for the third quarter after expanding production fell slightly below our expectations. To some extent, it shows that the company's new production capacity will take time to digest, lower the company's performance forecast, and not considering the increase in performance brought about by this acquisition for the time being. The company's EPS from 2018 to 2020 is expected to be 0.81/1.02/1.29 yuan (previous value was 0.94/1.24/1.49 yuan). Comparable companies' average PE in 2019 was 15 times. Considering the company's scarcity, leading attributes, and the synergy brought about by industrial chain expansion, we believe that the company's reasonable price range in 2019 was 18.36-22.44 yuan, corresponding to the 2019 PE range of 18-22 times. Maintain the “Overweight” rating. Risk warning: the risk that the production and sales rate will not meet expectations after the expansion of production; the risk of industry growth falling short of expectations; the risk of fluctuations in the price of raw aluminum foil.