Incidents: In 2018, net profit of 156 million yuan was deducted, an increase of 14% over the previous year. In line with expectations, the company released its annual report on March 28. In 2018, it achieved revenue of 599 million yuan, an increase of 13.73% over the previous year; net profit of 156 million yuan, a year-on-year decrease of 18.95%. After deducting non-net profit of 156 million yuan, an increase of 14.09% over the previous year, in line with expectations; the decrease in net profit was due to a sharp decrease in the company's confirmed asset disposal income in 2018, and the added value of operating profit was less than the decrease in asset disposal income. The company expects net profit of 0.32-035 million yuan in 19Q1, a year-on-year decrease of 0-10%. As a global leader in bonded NdFeB, we expect a steady increase in sales of magnets for automobiles and energy-saving motors. At the same time, the sales volume and revenue share of samarium cobalt magnets and hot-press magnets are expected to increase further. We expect EPS of 0.55/0.62/0.68 yuan in 19-21, maintaining the “increase in holdings” rating. The product structure was continuously adjusted. Sales of automotive magnets increased by 556 million yuan in 2018, and the revenue of bonded NdFeB magnets was 556 million yuan, an increase of 11.52% over the previous year, mainly due to a significant increase in automobile magnet sales revenue, especially micromotors and sensors for mid-range and high-end cars; the gross profit margin was 35.81%, a decrease of 3.88pct over the previous year, mainly due to increased competition in the industry. The company continues to optimize the product structure and vigorously develop magnetic materials for automobile motors and high-efficiency and energy-saving motors; with the development of automobile comfort, energy saving, and automation, the number of magnets used in bicycle motors will increase. In terms of raw materials, according to Baichuan Information, prices of major rare earth varieties fluctuated in the 15% range in 2018; in 2018, the country raised rare earth mining indicators, and the US, Australia and other places supplied light rare earths one after another. We expect light rare earth prices to remain stable; the supply of medium and heavy rare earths due to the influence of imported minerals from Myanmar may shrink and prices rise, which may cause company costs to rise. Some new products, such as samarium cobalt magnets and hot-pressed magnets, have entered mass production, and the share of revenue is expected to continue to increase by 64% in 2018; samarium cobalt magnets have characteristics such as high magnetism, low temperature coefficient, and corrosion resistance, and are widely used in aerospace, military equipment and other fields. In 2018, the revenue growth rate of hot-pressed magnets was 563%; hot-pressed magnets can replace some sintered magnets, mainly used in various high-efficiency and energy-saving motor fields such as automotive EPS, power tools, and servo motors. During the reporting period, the company's samarium cobalt magnet project with an annual production capacity of 200 tons and a hot-pressed NdFeB magnet project with an annual production capacity of 300 tons were completed, and some products have already entered mass production. The company is currently working to reduce its production costs. Once the bottleneck of technology cost reduction is broken, capacity utilization is expected to be further released, and it is expected that the revenue share of new magnets will continue to increase in the future. The world's leading bonded NdFeB product is expected to release new products steadily. The “increase in holdings” rating takes into account the increased competition in the magnetic materials industry in '18 and the decline in gross margin and is likely to continue. We downgraded the 19-21 magnetic material sales price and gross margin assumptions. The estimated revenue for 19-21 is 7.14/8.28/949 million yuan (76/872 million yuan before 19-20), and net profit is 1.78/200/220 million yuan (prior value of 19/218 million yuan). In 2019, Wind, a rare earth permanent magnet company, unanimously anticipated the average PE value of 48X. The company's products were bonded NdFeB, and comparable companies mainly used sintered NdFeB; considering that bonded NdFeB is mostly used in fields with specific magnetic strength requirements, the ratio of market space to sintered NdFeB is relatively limited, and the demand growth rate is relatively stable, so a certain discount was given, according to net profit of 27-30XPE in 2019, raising the target price to 14.85-16.50 yuan (previous value of 13.16-14.21 yuan), “increase in ownership” rating. Risk warning: Prices of rare earth raw materials fluctuate greatly; the market expansion of new magnetic materials falls short of expectations.