The company released its first-quarter performance report. During the reporting period, the company achieved operating income of 690 million yuan, an increase of 1.07% over the previous year; net profit was a loss of 4.22 million yuan, a year-on-year decrease of 89.73%. Key points supporting ratings: Losses narrowed sharply in the first quarter, and business adjustments are beginning to bear fruit. The company lost 4.22 million yuan in net profit in the first quarter and 41.12 million yuan in the same period last year. The first quarter was a traditional low season for the industry, and the company still achieved a sharp reduction in losses. Currently, the company has adjusted telecom broadband access terminals, which are its traditional main business, to improve risk resistance by actively expanding new customers and adjusting the customer structure, and relocating production bases to reduce production costs. In addition, the company has also optimized and adjusted its product structure, gradually favoring new products such as white box switches, high-end optical modules, and 5G small base stations, creating new profit growth points for the company. With the acquisition of leading optical module companies, the high-end optical module layout is gradually improving. In the first quarter, the company announced the acquisition of assets from Oclaro Japan, a leading global high-end optical module company, to continue to improve its layout in the field of high-end optical modules. This acquisition includes two types of optical module products: digital communication and telecom. Among them, digital communication products are an improvement on the company's original 100G digital communication products, while telecom products have opened up new business scenarios for the company. At present, the SPV company established by the company has begun to deliver related telecommunication products to customers. Through two mergers and acquisitions, the company has successfully established a product line of two types of high-end optical modules, digital communication and telecommunications, laying the foundation for the enterprise to expand new business. Continuously increase investment in R&D and collaborate in many places to enhance growth potential. The company's R&D expenses in the first quarter reached 44.67 million yuan, an increase of 34.01% over the previous year. The company has set up R&D centers in China, the US, and Japan. The Silicon Valley R&D center in the US keeps abreast of the latest technology in the industry and the new needs of major overseas customers; the Japanese R&D center works in the same office building with optical chip suppliers to facilitate communication and cooperation; and the Shanghai R&D center closely cooperates with China's developed supply chain to continuously reduce product costs and production costs. The company's unique R&D division of labor and cooperation between China, the US, and Japan will generate great collaborative advantages and help the company continue to break through and grow. Valuation Our forecast for the company's EPS for 2019-2021 is 1.06, 1.55, and 2.06 yuan, and the corresponding price-earnings ratios are 37 times, 25.2 times, and 19.1 times, respectively, maintaining the buying rating. The main risks faced by ratings Market macro risk; competitive risk; management risk; new technology risk.