The company achieved EPS0.67 yuan in 2018, revenue rebounded in the second half of the year, and gross profit margin increased in the fourth quarter over the same period last year. Taking into account the increase in raw material costs and changes in product structure leading to a decline in gross profit margin for the whole year, we accordingly downgrade the company's 20-year EPS forecast to 0.80 won 1.00 yuan (the original forecast is 0.83 won 1.02 yuan), and give the company a 2021 EPS forecast of 1.25 yuan. Taking into account the company's technical strength and competitive advantages, to maintain the "overweight" rating, the target price of 30 yuan.

The performance was in line with expectations and showed a positive trend in the second half of the year. In 2018, the company achieved an income of 489 million yuan (+ 17.68%), a net profit of 108 million yuan (+ 0.51%) and an EPS of 0.67 yuan. The shipbuilding industry gradually picked up, and the company achieved 279 million yuan (+ 54%) in revenue in the second half of the year, reversing the decline in revenue in the first half of the year compared with the same period last year. Gross margin fell 3.23pcts to 49.22%, but in the fourth quarter gross margin rose 2.04pcts to 55.07% year-on-year, showing a positive trend. As a result of the increase in equity incentive expenses, amortization expenses and employees' salaries, the management expenses increased by 68.7% compared with the same period last year, and the performance growth rate was lower than the income growth rate. The company expects to make a profit of 1300-15 million yuan in the first quarter of 2019, which is basically the same as that of the same period last year. Taking into account the continuous improvement of the localization rate of marine equipment and the emergence of pre-R & D results, we expect the company's performance to return to rapid growth.

Ship power distribution system: the warming of shipbuilding industry and the promotion of localization rate drive business development. The company is one of the few domestic suppliers of marine electrical equipment with independent core technology in the industry. The revenue of the ship power distribution business reached 209 million yuan, an increase of 6.81% over the same period last year, and the gross profit margin decreased by 3.49pcts to 50.43%. In 2018, new orders were received nationwide of 36.67 million deadweight tons, an increase of 8.7 percent over the same period last year. At the end of the year, orders were held for 89.31 million deadweight tons, an increase of 2.4 percent over the same period last year, and the shipbuilding industry continued to pick up. In 2016, the Ministry of Industry and Information Technology issued the Action Plan for capacity Enhancement of Shipbuilding supporting Industry. it is planned that by 2020, the loading rate of localization equipment of mainstream ship types will be more than 80%, that of high-end ship types will be more than 60%, and the localization rate of key parts of marine equipment will be 80%. In 2018, the company set up the Electro-hydraulic Division and the thin Film Capacitor Division. After 19 years of identification, the marine hydraulic series will be put on the market, and the thin film capacitor is expected to achieve large-scale production. The continuous innovation of the company's products is expected to drive the ship distribution business to continue to improve.

Ship engine room automation system: policy to promote market expansion, the company is expected to continue to benefit. The company is one of the few enterprises with independent innovation ability in the automation system related equipment industry, and has obvious competitive advantages in this field. The revenue of the automation business reached 272 million yuan, an increase of 25.58% over the same period last year, and the gross profit margin fell 3.01pcts to 48%. On December 27, 2018, the Ministry of Industry and Information Technology, the Ministry of Communications and the State Administration of Science, Technology and Industry for National Defense jointly issued the Intelligent ship Development Action Plan (2019-2021). The ship automation market is expected to expand rapidly. The company increased its R & D investment, spending 35.27 million yuan on R & D in 2018, including 2 new national defense patents and 4 utility model patents. During the reporting period, the intelligent engine room system was delivered to the Xuelong 2 polar research ship. The company continues to expand its cooperation with university shipyards and has successively signed strategic cooperation agreements with Dalian Maritime University, 701 and 708. With the expansion of middle and high-end customers, the company's ship automation business market share and gross profit margin are expected to increase.

Risk factors: the progress of product research and development is lower than expected; the expansion of civilian products is not as expected.

Investment advice: taking into account the increase in raw material costs and changes in product structure leading to a decline in gross profit margin for the whole year and other factors, we accordingly lowered the company's 20-year EPS forecast in 2019 to 0.80 EPS 1.00 yuan (the original forecast was 0.83 pm 1.02 yuan), and gave the company a 2021 EPS forecast of 1.25 yuan. The current price is 25.36RMB, corresponding to the PE of 2019-20-21 is two times that of 32-25-20. Taking into account the company's technical strength and competitive advantage, maintain the "overweight" rating, the target price of 30 yuan (corresponding to 2019 38 times PE).