Events: 1. The company released the 2018 annual report. The company achieved operating income of 2,584 billion yuan during the period, a year-on-year (adjusted) increase of 55.34%; realized net profit of 162 million yuan, a year-on-year (adjusted) increase of 237.74%; net profit after deduction of 41,5653 million yuan, an increase of 8.96% year-on-year (after adjustment); and basic earnings per share of 0.68 yuan. The company plans to distribute a cash dividend of 0.63 yuan (tax included) for every 10 shares. 2. Released the report for the first quarter of 2019, which achieved operating income of 540 million yuan during the period, an increase of 23.38% over the same period; net profit of 22.5746 million yuan, an increase of 198.99% over the same period (after adjustment); net profit after deduction of 22.493 million yuan, an increase of 197.94% over the same period last year (after adjustment). Comment: 1. High growth in the military products business has driven a significant increase in performance. Currently, the company's three main businesses are photoelectric defense and key site monitoring, optical component components, and projector business. Among them, photoelectric defense and key site monitoring are mainly military products. In 2018, operating income (971 million yuan, +143.11%) and gross profit margin (31.82%, +1.20%) were achieved, accounting for 37.57% and 57.20% of total revenue and gross profit of listed companies respectively. Compared with about 20% and 34% of exam preparation revenue in 2017, it is the most important driving force for rapid performance growth. In terms of civilian goods, optical components maintained steady growth, achieving revenue (912 million yuan, +6.30%) and gross profit margin (18.67%, +1.81%); the projector business realized revenue (597 million yuan, +182.05%), gross profit margin of 3.78%, but due to low gross margin, its high contribution to performance was limited. In addition, the company's period expense ratio was 13.36%, a year-on-year decrease of 1.86%, mainly the current year's exchange income of 9.49 million yuan compared to the same period last year (-14.46) million yuan, which led to a sharp drop in financial expenses of 94.62%, which helped improve the company's performance to a certain extent. 2. The performance of optics among military business entities has exceeded expectations, and it is expected that it will continue to gain strength. During the period, the company completed the acquisition of 100% of the shares of Zhongguang, a large optoelectronic military enterprise under the Armament Group. Currently, China Optoelectronics is the main undertaker of the company's military product production tasks. Its main military business is military photoelectric defense and key site surveillance, manufacture of various light weapon scopes, stable control photoelectric systems, and detection and interference systems. It is also the only domestic military unit designated by the State Border Guard Commission to be selected for both land defense and coastal defense surveillance. The performance promises of the parent company of China Optics for 2018-2020 were 3388894 million yuan, 37.013 million yuan, and 39.9237 million yuan respectively. In 2018, Optics achieved revenue (1,671 million yuan, +108%), net profit (904.56 million yuan, +299%), and the parent company of China Optics withheld 107 million yuan in non-net profit, which greatly exceeded the above performance commitment targets. The goal of strengthening China's military requires ensuring that significant progress has been made in informatization construction by 2020. As China's military spending continues to grow and military informatization construction continues to advance, it is expected that the company will continue to benefit from it. Furthermore, the company has completed supporting financing projects totaling 351 million yuan (issue price of 15.35 yuan/share, additional shares of 22.84 million shares). After deducting intermediary fees, a total of 336 million yuan was used for China Optics capacity building projects, which are expected to further enhance military strength. Also, judging from the quarterly report, the main thing is that military and civilian products grew rapidly year on year, and it is optimistic that the company's military business will continue to grow at a high rate. 3. The impact of non-recurring projects on net profit is limited, so consider large asset impairment and go into battle lightly. There was a certain gap between the company's net profit and net profit deducted from the parent's net profit during the period. Mainly, the net profit of 63 million yuan achieved by China Optics before the merger this year included non-recurring profit and loss; investment income reached 63.08 million yuan, mainly 1) disposal of part of the equity income of Armament Finance Company 25.86 million yuan; 2) the shareholding ratio of the subsidiary Gibang Optoelectronics, which originally held 55% of shares, was diluted to 24.6% after the capital increase. The remaining equity re-measurement generated profit and equity law accounting for long-term equity investment income totaling 33.73 million yuan. However, since the company accrued asset impairment losses of 73.4 million yuan, which were basically offset in terms of amount with investment income, investment income actually had little impact on the net profit of the parent. In addition, asset impairment losses were mainly due to falling inventory prices of RMB 47.06 million and provision of RMB 27.09 million for bad debts in accounts receivable. The large calculation also reduced the burden on the company's subsequent development. 4. There is still room for capital operation, and equity incentives stimulate internal vitality. Armament Group still has assets in the optoelectronics sector outside of its body, and the company still has room for capital operation. In addition, the company has completed equity incentives and granted a total of 1,693,300 shares of restricted shares to 103 people, including company executives, core marketing, technical and management executives, at 5.65 yuan/share, accounting for 0.83% of the total share capital, which is conducive to stimulating employee enthusiasm and the company's internal vitality. 5. Profit forecast predicts that the company's net profit in 2019-2021 will be 173 million yuan, 206 million yuan and 247 million yuan respectively, corresponding to EPS of 0.66 yuan, 0.79 yuan and 0.95 yuan respectively, maintaining the “Highly Recommended - A” rating. Risk warning: Product development progress falls short of expectations; competition in the civilian market is intensifying.