1. Event Overview On April 22, the company released its 2018 annual report. It achieved annual revenue of 648 million yuan, an increase of 14.33% over the previous year; realized net profit of 253 million yuan, a year-on-year decrease of 305.64%. The earnings forecast for the first quarter is that net profit for the first quarter will fall by 0% to 30% year on year, with an estimated profit of 21.4 million yuan to 30.58 million yuan. 2. Analysis and judgment of steady growth in operating income. Impairment in goodwill led to a final loss. In 2018, the company achieved annual operating income of 648 million yuan, an increase of 14.33% over the previous year. The main reason was that integrated optoelectronic products and cable component products maintained steady growth; net profit of net profit was 253 million yuan, a decrease of 305.64% over the previous year, due to impairment of goodwill of 508 million yuan, a wholly-owned subsidiary of Changkang Environmental Protection. The cost rate for the current year period was 27.81%, which is basically the same as the previous year. Among them, R&D expenses increased by 12.32%, and the company's research projects reached 45. The gross profit margin was 50.17% in 2018, a slight decrease from 2017. The performance forecast for the first quarter is that net profit for the first quarter decreased by 0%-30% year-on-year, with an estimated profit of 21.4 million yuan to 30.58 million yuan. The main reason is that Changkang Environmental Protection's performance for the first quarter declined sharply due to industry factors, external environment, and delivery delays, and tax increases due to failure to pass the high-tech enterprise certification in 2018 and no longer enjoy preferential tax policies. There has been significant growth in components and optoelectronic systems. FC optical fiber market companies are mainly engaged in optoelectronic components, cables, FC optical fiber network communication systems, and water treatment equipment. The core business is optoelectronic components and systems. In 2018, the sector achieved revenue of 306 million yuan, an increase of 23.01% over the previous year, accounting for 47.16% of the company's total revenue, an increase in concentration over the previous year. The cable sector achieved revenue of 229 million yuan, a year-on-year decrease of 1.3 pct, mainly due to a 24.57% drop in revenue from other insulating materials for cables. During the reporting period, the company's reserves of technologies such as photoelectric cables and components for aerospace and next-generation FC optical fiber buses were successfully applied to optical and electrical transmission systems in new equipment, and orders were formed. The company is at the forefront of technology in the domestic FC bus field. The products have been successfully installed in next-generation airborne, shipborne and electronic communication systems, and the market will continue to grow in the future. Selling inefficient assets, the company can expect steady growth in the future. On January 12, the company announced that it intends to transfer 100% of the shares of Changkang Environmental Protection, a wholly-owned subsidiary, to 5 natural persons. After the share transfer is completed, the company will no longer hold shares in Changkang Environmental Protection. The company acquired Changkang Environmental Protection in 2016. The performance promises for 2016 to 2018 were 4800, 5900, and 67 million yuan respectively. However, due to the company's delays in delivery of some orders during the reporting period, the performance promise was only completed at 36.43 million yuan. In the end, the company calculated a loss of 508 million yuan in goodwill impairment. If there is no impairment of goodwill or compensation for performance this year, the company can achieve net profit of 56 million yuan, a decrease of 54% over the previous year. The reason for the decline is the overall decline in the company's gross margin and the increase in tax expenses. We anticipate that after the transfer transaction is completed, the company is expected to return to a growth trajectory. The company carried out a repurchase plan to maintain confidence in long-term development. In December 2018, the company disclosed the repurchase plan. It plans to repurchase no less than 60 million yuan, not higher than 120 million yuan. It is estimated that 4 million to 8 million shares can be repurchased, accounting for 1.28% to 2.56% of the company's total share capital. The company's repurchased shares will be used for employee stock ownership plans or equity incentive plans. The implementation expectations of the repurchase plan and equity incentive plan demonstrate the company's confidence in long-term stable development. Currently, more than half of the repurchase plan is over, but since it is still not carried out during the sensitive period of disclosure of annual reports, it is expected that the company will take the opportunity to repurchase in the next three months. 3. Investment advice The company's main business is optoelectronic components, systems, and cables. After divesting inefficient assets, we are optimistic about the company's long-term development. The company's EPS for 2019 to 2021 is expected to be 0.47, 0.58, and 0.66 yuan, respectively, and the corresponding PE is 25X, 20X, and 18X. Comparable companies have an average valuation of 32X, covering the first time, giving it a “recommended” rating. 4. Risk Warning 1. Cable sector revenue continues to decline; 2. Gross margin continues to decline