Event: The company released its 2018 performance forecast. It is expected to achieve net profit of 55 million to 75 million yuan, a year-on-year decrease of 39%-55%. Investment points In 2018, the cathode materials business was under pressure and performance declined. Future product structure upgrades to high-end companies predicted net profit of 55 million to 75 million yuan in 2018, a year-on-year decrease of 39%-55%, mainly due to the decline in gross margin of cathode materials and a decrease in investment income. Since 2018, the cathode materials market has been fiercely competitive. Prices of cathode materials such as lithium cobalt oxide and ternary 523 have continued to decline along with the decline in the price of raw materials cobalt; however, according to the first-in-first-out method of inventory, the high-priced cobalt originally stored by the company will lead to a decrease in gross margin compared to the same period in 2017. At present, the impact of fluctuations in raw material prices has been eliminated. We believe that as the price of cathode materials stabilizes and the company's product structure is gradually upgraded to the high-end (high nickel 811), the company's ternary cathode materials are expected to enter the supply chain system of first-tier manufacturers, profitability is expected to rise, and 2019 performance is expected to stabilize. Haoneng Technology won the CATL equipment order and is expected to seize the opportunity to expand production and grow into a leading equipment leader. In July 2018, Haoneng Technology won a bid of 364 million yuan in the Ningde Era equipment tender, which is equivalent to 50% of Haoneng's 2017 revenue. It is estimated that the current order of 1 billion yuan will have a positive impact on 2019 performance. At the same time, winning the bid this time means that Haoneng has become one of the core of CATL's supply system, and its technical level has been recognized. First-tier car companies and battery companies represented by Tesla are accelerating their investment in China. Recently, LG Chem and Samsung SDI have announced that they will restart production capacity for power lithium batteries in China, and domestic manufacturers such as CATL and BYD are also speeding up the expansion of production. According to public statistics, the world's top five battery manufacturers, CATL, LG, Panasonic, Samsung, and BYD, currently have production capacity of about 99Gwh. It is estimated that by 2022, production capacity will increase by 410Gwh, reaching 509Gwh, and corresponding equipment demand will reach 146.9 billion yuan. However, Haoneng Technology has outstanding advantages in front-end equipment. It already has deep cooperation with CATL and BYD. It is hoped that in the future, it will seize the opportunity to continue to break through major customers and grow into a leading front-end equipment leader. With the proposed acquisition of Chengjie Intelligence and Yuchen Automation, the synergy effect is worth looking forward to. Keheng Co., Ltd. plans to acquire Chengjie Intelligence, the target of winding equipment, for 650 million yuan, and Yuchen Automation, which is the target of liquid injection equipment, for 450 million yuan. Yuchen's products are mid-stage equipment for battery production. Currently, it mainly provides power battery companies with specialized assembly and test automation equipment for lithium batteries. Chengjie Intelligent's products are mainly mid-stage core equipment for battery production, including fully automatic production and winding equipment for the lithium battery and supercharging industries. We believe that after the successful acquisition, Keheng is expected to open up the entire lithium battery production line. The two target companies can form a good synergy with Haoneng Technology's advanced equipment business, further enhancing Keheng's competitiveness in the field of lithium battery equipment. Profit forecast and investment rating: If acquisition factors are not taken into account, we expect the company's net profit for 2018-2020 to be 0.7/13/180 million, corresponding to the current stock price PE of 42/22/16X; if this acquisition is considered, we expect the company's 2018-2020 exam preparation net profit to be 0.7/235/305 million, corresponding to the current stock price PE of 42/12/10X, maintaining a “buy” rating. Risk warning: The expansion of lithium battery production has fallen short of expectations; industry competition has intensified.