Incidents: The company announced that it achieved revenue of 81 million yuan in 2018, an increase of 5.7% over the previous year; realized net profit of 34.67 million yuan, a decrease of 14.1% over the previous year; acquired 51% of shares in Deqing Kosai, a fluoropolymer materials company, with its own capital; and plans to implement restricted equity incentives of 1.613 million shares. Sales volume drives revenue growth, and high material costs affect net profit: In 2018, when the home appliance and automobile markets were sluggish, revenue growth continued due to increased sales of modified plastics and specialty polymer materials. The company's product development closely focuses on “lightweight automobiles” and “intelligence” of home appliances, and has outstanding competitive advantages in the high-end market. The company's expenses for the past three years were 11.5%, 11.5%, and 9.7% (three-quarter report). The decline in net profit margin was mainly affected by increases in basic materials prices. According to Wind data, the average prices of PP and PC in 2018 increased by 3.7% and 29.8% respectively during the same period, and the cost of raw materials rose sharply. Since 2019, the average price of PP and PC has decreased by 1.7% and 37.8% compared to the same period last year. The cost of core materials fell rapidly in 2019, and the signing of new orders is expected to increase gross profit. The acquisition of Deqing Cosai collaboratively develops LCP, and equity incentives highlight the company's determination: Deqing Cosai is one of the earliest domestic enterprises to carry out research and industrialization of fluoropolymer materials and their applications. It mainly engages in polytetrafluoroethylene. The products have been used in the fields of chemicals, petroleum, pharmaceuticals, etc., enjoy a good reputation and sales market in China, and are also exported in large quantities to countries around the world, including America, Europe, Asia, Australia, the Middle East, etc., and has been widely praised by customers. Deqing Cosai's 2017/2018 performance was 2.383 million and 1.045 million. The promised performance in 2019 was not less than 11 million, PE was acquired 10 times, and PB was 2.7 times lower. The valuation was low. Deqing Kosai. Deqing Cosai has thin-film technology for high-frequency equipment, paving the way for LCP to enter the 5G mobile antenna market. This time, it is proposed to grant equity incentives to the core team, demonstrating the company's determination to promote new materials. LCP new materials lead the industry, and 5G mobile phone antenna space is vast: Currently, the company is the only manufacturer in the world with a full range of continuous type I, type II and type III LCP resins, with a production capacity of 3,000 tons. The LCP material has a low dielectric constant and low dielectric loss, and can meet higher signal transmission speed and signal quality. It is ideal for 5G applications adding bands 3.3 to 3.6 GHz and 4.8 to 5 GHz. The company has developed an LCP with controllable dielectric constant specifications that meet industrial requirements, and the dielectric constant can be customized. It has a number of patents for the preparation of fiber-grade and film-grade LCP. Taking advantage of Deqing Cosai's advantages in mass production of films for high-frequency equipment, it combines existing high-frequency circuit board substrate materials and LCP materials to form systematic high-frequency material solutions. In 2018, China shipped 398 million smartphones, and 5G phones are about to be marketed on a large scale. Referring to the iPhone X's single LCP antenna worth about 4-5 US dollars, the 5G phone's dual antenna is estimated to have a domestic market space of 32 to 4 billion US dollars. Investment advice: The estimated EPS for 2019-2020 is 0.46/0.61 yuan, giving a buy-A rating for the first time. The target price for 6 months is 24.5 yuan, corresponding to 58/40 times PE. Risk warning: Downstream demand development progress falls short of expectations, etc.