Net profit increased 16% in 2018, and performance was in line with expectations. 2019Q1 net profit fell 10% Strong New Materials released its 2018 annual report on April 7. The company achieved annual revenue of 739 million yuan, a year-on-year increase of 15.5%, net profit of 147 million yuan, a year-on-year increase of 15.8%, slightly lower than the previous performance report of 149 million yuan, in line with market expectations. Based on the latest share capital of 271 million shares, the corresponding EPS is 0.54 yuan. Among them, 2018 Q4 achieved operating income of 226 million yuan, a year-on-year increase of 34.5%, and net profit of 34 million yuan, an increase of 68.9% over the previous year. The company plans to distribute 1.5 yuan (tax included) for every 10 shares and transfer 9 shares. At the same time, the company released its 2019 quarterly report. 2019Q1 achieved revenue of 184 million yuan, a year-on-year increase of 9.7%, net profit of 33 million yuan, a year-on-year decrease of 10.2%, corresponding to EPS of 0.12 yuan. We expect the company's EPS in 2019-2021 to be 0.69/0.83/0.97 yuan respectively, maintaining the “increased holdings” rating. In the 2018 report period of steady growth in the company's main business, the company's sales volume of PCB photoresist photoinitiators/PCB photoresist resins increased 0.3%/18.9% year on year to 968/2351 tons, the average price increased 30% /1% year on year to 184/28,000 yuan/ton, PCB photoresist special chemicals achieved revenue of 243 million yuan, up 27.6% year on year; LCD photoresist photoinitiators achieved sales volume of 73 tons, up 4.6% year on year, average price 2.39 million yuan/ton, down 6.1% year on year, corresponding revenue of 175 million yuan, year-on-year decrease of 175 million yuan, year-on-year decrease of 175 million yuan, year-on-year decrease of 175 million yuan 1.8%; sales volume of photoinitiators for other uses was 3,912 tons, down 21.1% year on year; average price increased 51.1% year on year to 54,000 yuan/ton; corresponding revenue was 210 million yuan, up 19.2% year on year. Due to rising raw material costs, the company's gross margin decreased by 1.2pct to 40.0% year-on-year, with PCB/LCD photoinitiator gross margin falling by 3.1/8.0 pct to 42.6%/58.8%, respectively. The subsidiary is doing well, and the company's expenses during the period have increased. Due to the increase in expenses such as employee remuneration, etc., the company's sales/management/financial expenses in 2018 varied by 0.5/1.7/-0.8 pct to 4.1%/14.8%/0.0%, respectively. In terms of subsidiaries, Qiangli Advanced/Jiaying Chemical achieved net profit of $0.93/044 million respectively, an increase of 8%/55% over the previous year. The company's non-recurring revenue in 2018 was 12.27 million yuan, mainly government subsidies. The same period in 2017 was 5.97 million yuan. The performance of 2019Q1 fell short of expectations. The revenue of the 2019Q1 company increased 9.7% year on year to 184 million yuan, and net profit fell 10.2% year on year to 033 million yuan. Due to intense product competition and rising raw material prices, the overall gross margin of Q1 company fell 7.9 pct to 36.3% year on year, constituting the main reason for the decline in performance. The company's sales/management expense ratio increased by 0.5/1.2pct to 3.8%/9.0% year on year, respectively. Due to reduced exchange losses, the financial expense ratio decreased by 1.3 pct to 0.6%. In addition, the company's non-recurring revenue for the first quarter was 3.88 million yuan (mainly financial income), compared to 1.16 million yuan in the same period last year. Maintaining the “increase in holdings” rating, considering that competition for photoinitiator products tends to be intense. In line with the 18-year report, we adjusted the sales volume and average price forecast of PCB/LCD photoresist photoinitiators, lowered the company's net profit for 2019-2020 to 188/224 million yuan (original value of 219/265 million yuan), and predicted net profit for 2021 to 262 million yuan, corresponding to the 2019-2021 EPS of 0.69/0.97 yuan, respectively. Combined with the valuation level of comparable companies (51 in 2019) (Double PE), giving the company 50-53 times PE in 2019, corresponding to the target price of 34.50-36.57 yuan (original value 35.64-38.88 yuan), maintaining the “increased holdings” rating. Risk warning: risk of core technology being lost, new business development falling short of expectations, and risk of fluctuations in downstream demand.