The incident company announced its 2018 annual report on March 30, 2019. Operating income was 1.4 billion yuan, up 5.35% year on year, net profit attributable to parent company was 110 million yuan, down 17.62% year on year, and net profit after deducting non-recurring profit and loss was 0.8 billion yuan, up 4.07% year on year. Among them, Q4 had quarterly revenue of 340 million yuan and net profit attributable to the parent company of 0.3 billion yuan. A brief review of the industry's declining revenue growth rate has slowed, and the Daimler Mercedes-Benz project has achieved mass production. In 2018, production and sales of the automobile industry reached 27.8 million vehicles and 28.08 million vehicles respectively. In particular, the downward pressure increased in the second half of the year, and the annual growth rate fell to 2.8%. During the reporting period, the company achieved operating income of 1,405 billion yuan, up 5.35% year on year; net profit of 112 million yuan, a decrease of 17.62% year on year; due to investment income of 27.32 million yuan generated by the company's transfer of shares in Wuhan Fuda Crankshaft Company in 2017, the company withheld non-net profit of 81 million yuan in 2018, an increase of 4.07% over the previous year, clearly superior to the industry. Among them, Q4's quarterly revenue was 342 million yuan, down 6.14% year on year; net profit was 32 million yuan, up 6.20% year on year. The company adjusted its product structure in 2018. The share of commercial vehicles, agricultural machinery, and construction machinery ancillary products increased by 7.11% year-on-year, and the share of passenger vehicle ancillary products fell to 17.43% from 24.54% in 2017. At the same time, the company actively explores the market, optimizes the customer structure, receives orders for Cummins's national six products, successfully enters new markets such as SAIC Motor and Sany Heavy Truck, and realizes mass production of projects related to Yanmar, Daimler Benz, and Volvo. The customer structure has a clear advantage over competitors and is expected to provide further support for future revenue growth. Rising raw materials put pressure on gross profit, and continued investment in research and development. Prices of steel raw materials, cartons, pressure plates, etc. rose in 2018, leading to an increase in company costs, and gross margin decreased by 1.61pct to 23.2% year on year. By product, the gross margins of the company's crankshafts, clutch gears, precision forgings, and high-strength bolts were 23.51%, 32.23%, 9.95%, 9.22%, and 22.84%, respectively, with year-on-year changes of -1.48pct, +1.23pct, -2.44pct, -0.61pct, and -2.29pct. During the same period, the company strengthened cost control, with a sales expense ratio of 4.57%, a year-on-year decrease of 1.10% due to a reduction in after-sales three-package expenses; the management fee rate was 4.39%, a year-on-year decrease of 5.09%; and the financial expense ratio was 2.12%, an increase of 0.32% year-on-year. In addition, with an R&D investment of 0.7 billion yuan and long-term cooperation with well-known domestic R&D institutions and research institutes, the company has not only been very effective in technology development, but has also cultivated and developed a technology development team, greatly enhancing its ability to develop new products independently. At present, the capacity utilization rate of the company's various products is still low. In the future, with the recovery of the industry, production capacity has been further released. Volvo/Mercedes-Benz projects will continue to be mass-produced, and future profits are expected to continue to increase. Operating cash flow continues to improve, and joint ventures have been established to expand high-end non-road markets. The company's net operating cash flow during the reporting period was 314 million yuan, up 3564.51% year on year, mainly due to the fact that most of the materials purchased this year were paid using bank acceptance drafts and operating activities were subject to increased cash flow; net investment cash flow - 150 million yuan, an increase of 455.86% year on year, mainly affected by redemption of wealth management products; net cash flow from fund-raising activities was 145 million yuan, a decrease of -65.25% year on year, mainly due to the year-on-year decrease in loan repayment amounts this year. According to the report, Qinai Company and German Alfin Company established Guilin Fuda Alfin Large Crankshaft Co., Ltd. The new plant is expected to be put into use in March, using the advantageous channels of all parties to increase the share of high-end business, and gradually transform and upgrade to high-end equipment manufacturing industries such as ships, nuclear power generation, and large-scale power machinery, forming a new profit growth point. Investment advice The company is a high-quality supplier of automotive power system components. As the customer structure continues to be optimized and production capacity is further released, the company's future performance is expected to continue to grow. We expect the company's net profit in 2019-2020 to be 130 million yuan and 165 million yuan respectively. The corresponding PE is 32x and 25x respectively, giving it an “increase in holdings” rating. Risks indicate the risk of fluctuations in the automotive industry; the risk of fluctuations in raw material prices; and the risk of customer development falling short of expectations.