To acquire Guoguang Electric and Cisco Rui and continue to lay out the military electronics industry chain, the company issued an announcement on June 17 to acquire 98% of Guoguang Electric's shares with 1,127 billion yuan and 100% of Cisco Rui's shares with 910 million yuan, with a total transaction price of 2,037 billion yuan (40% cash, 60% of shares issued, stock price of 10.69 yuan/share, about 114 million shares). The situation of the two standards is as follows: (1) Guoguang Electric: The company specializes in military microwave electric vacuum devices, solid-state microwave devices, etc., with revenue of 429 million yuan in 2018, +36.2% over the same period. The civilian goods business includes vacuum switches and contactors/vacuum monitoring and control equipment; net profit in 2018 was 76 million yuan, +245% year-on-year. (2) Cisco Rui: The company's main business is military component inspection and screening, DPA, failure analysis, quality assurance technical services, etc. In 2018, the company's revenue was 0.7 billion yuan, +250% over the same period, and net profit was 32 million yuan, +274% over the same period last year. The military and chemical industries continue to grow, and epitaxial acquisitions focus on the main military industry, hoping to benefit from domestic alternatives. In 2018, the company achieved revenue of 3.825 billion yuan, +12.48%, net profit of 503 million yuan, net profit of 503 million yuan, and net profit of 117 million yuan, mainly subsidiaries Changsha Shaoguang and Weike Electronics contributed performance: (1) Changsha Shaoguang: The core products are FPGA/DSP/bus controller/microconfiguration storage, etc., and the GPU chips developed by them have full intellectual property rights, in Information security and supply capacity are fully guaranteed, and mass production is expected to be achieved within the year. In 2018, it achieved revenue of 270 million yuan and net profit of 92 million yuan. (2) Wolters Electronics: The company is one of the few thick film integrated circuit manufacturers that have mastered LTCC-MCM technology. Its main business is multi-chip components. In 2018, it achieved revenue of 141 million yuan and net profit of 47 million yuan. After the acquisition was completed, the total net profit of the four military subsidiaries after traceability was 247 million yuan, accounting for 39.02% of the total net profit after traceability in 2018, and the performance share of military subsidiaries increased from 10.73% to 21%. The boom in the chemical industry may have bottomed out. The company's growth rate may have slowed, supply-side reforms in the chemical industry combined with stricter environmental regulations, promoted a double increase in the price and output of the company's main chemical products. The chemical business performed excellently. It achieved revenue of 3.420 billion yuan in 2018, +3.07% year-on-year, net profit of 386 million yuan, +74.66% year-on-year, and a gross profit margin of 22.44%, mainly due to the company's refined management. The economic downturn since this year has led to a contraction in downstream demand. The overall price of liquid alkale/propylene oxide in the industry fell by 21.57%/8.88% in the first half of 2019. In the future, the chemical business will continue to contribute cash flow to the company, helping the company's military electronics business to extend acquisitions and continue to deploy. Profit forecast and investment advice: Without considering mergers and acquisitions, revenue for 19-21 is expected to be 46.48/54.94/6.318 billion yuan, net profit of 7.22/9.09/1,143 billion yuan, EPS of 1.05/1.32/1.66, and P/E of 10.14/8.06/6.40x. Assuming the successful completion of this acquisition, the division valuation of the company's four military subsidiaries to obtain a reasonable market value of 14.293 billion yuan in preparation for the examination is 14.293 billion yuan, with room for growth of 67.64%. Risk warning: risk of performance promises not being fulfilled, risk of impairment of goodwill