Incident: On June 2, the company's “Suspension Notice Concerning the Planning and Issuance of Shares to Purchase Assets” revealed that the company plans to purchase 98.0027% of the shares of Chengdu Guoguang Electric Co., Ltd. and 100% of the shares of Chengdu Sikerui Microelectronics Co., Ltd. by issuing shares and paying cash. The company has been suspended since the opening of the market on June 3, 2019. It is expected that the transaction plan will be disclosed within no more than 10 trading days. Continue to follow the military electronics industry chain layout and build an autonomous and controllable chip industry chain. The company has successively completed the extended acquisitions of Shaoguang in Changsha, Wolters Electronics, CLP Huaxing, and Jiujiuanshields, which revolves around the in-depth layout of the military electronics industry chain. If Guoguang Electric and Cisco Rui are successfully acquired this time, the company's autonomous controllable chip industry chain will be further improved. Guoguang Electric, which the company plans to acquire this time, is a key construction aid project of the Soviet Union during the “First Five-Year Plan” period. It has made important contributions to national defense as a comprehensive microwave electron tube factory in China and a major national military enterprise, and has more than 60 years of technical experience in the industry. The company's microwave vacuum devices, solid-state microwave devices, special enameled wires and many other products have achieved complete internal support capabilities, and are widely used in military fields such as satellites, radar, and nuclear physics. Chengdu Sikerui's main business includes testing, screening, supervision and acceptance, failure analysis, and destructive physical analysis (DPA) of military electronic components. It is the “Chengdu Branch of the Beijing Airlines Inspection Station” authorized by the Aviation Industry Group Corporation's electronic components reliability management center. As a scarce target in the military integrated circuit testing industry, Cisco Rui will form a good synergy with the company's existing chip business. Autonomous and controllable high-performance graphics processing chips have entered the mass production promotion stage, and future orders can be expected. The localized autonomous controllable SG6931 graphics processing chip developed by Shaoguang in Changsha is mainly used in the display control part of main combat equipment and is the core component of the system. The chip has completely independent intellectual property rights and is fully guaranteed in terms of information security and supply capacity. In the future, it is expected that the market for supporting applications of weapons and equipment, civilian GPUs, etc. will be further expanded to achieve autonomy and control in the GPU field. We believe that the signing of this contract shows that the new high-performance graphics processing chip independently developed by Shaoguang in Changsha has entered the mass production promotion stage. It is expected to become a new growth point for the company's performance in the future, increasing the company's overall performance level. The military industry and chemical industry are flying hand in hand, and net profit nearly doubled in 2018. In 2018, the company achieved net profit of 505 million yuan, an increase of 98% over the previous year. The main reason is the improvement in the efficiency of internal operations and management and the increase in the contribution of the military industry to overall performance. On the chemical side, profits have increased dramatically due to continued industry prosperity and increased management efficiency; on the military side, some military products are supplied in batches, and orders have clearly been released. We believe that the company's chemical product boom cycle is expected to continue, which is a major stable profit point for the company in the future. At the same time, the stable cash flow brought by the chemical business will play a good supporting role in the development of the company's military business. Benefiting from the accelerated release of military business orders and the successive introduction of new products, contributing to incremental performance, the military sector will become the company's most important performance growth point in the future. Earnings forecasts and ratings. The company's chemical business has benefited from supply-side reforms and environmental policies, and ushered in a period of rapid growth in volume and price; military chips and integrated circuits have long benefited from autonomous, controllable, and localized alternative policies. We are firmly optimistic about the company's future development prospects. We expect the company's operating income from 2019 to 2021 to be 4.648 billion yuan, 5.494 billion yuan, and 6.318 billion yuan respectively; net profit attributable to the parent company from 2019 to 2021 is 730 million yuan, 982 million yuan and 1,244 million yuan respectively; EPS is 1.06 yuan, 1.42 yuan, and 180 million yuan respectively. The PE corresponding to the current stock price is 11.35 times, 8.43 times and 6.65 times, maintaining a “buy” investment rating. Risk warning: The prosperity of the chemical industry fluctuates; the performance of military subsidiaries falls short of expectations.