Company news matters The company released the 2019 interim report on July 25. The report revealed that the company's operating income for the period was 710 million yuan, an increase of -0.17% over the previous year, and achieved net profit of 38 million yuan after deducting non-return to the mother, an increase of 21.39% over the previous year. The matter comments on the dual upgrading of production capacity and structure, the company has entered a new era of 5G. The company was founded in 1991 and listed in 2009. Its main business includes copper foil, copper-clad boards, and electronic circuit boards. During the reporting period, the company's copper foil, copper clad board and electronic circuit board businesses accounted for 39.7%, 29.5%, and 27.3% of revenue, respectively. The company's strategy gradually focuses on the upstream PCB and grasps the 5G and new energy market opportunities. Looking at the copper foil business, the company currently has 12,000 tons of copper foil production capacity. In the second half of this year, it will add 8000 tons of production capacity, and will rely on 4,000 tons of lithium copper foil to enter the lithium battery business. The company and Shanghai Jiaotong University jointly established a joint research center for electronic materials, focusing on key process technologies for 5-10 GHz copper foil and substrate materials, providing strong technical support for the subsequent addition of 20,000 tons of high-precision copper foil production capacity. Judging from the copper-clad plate production line, the company and Meizhou are jointly planning to build an electronic information industry base, which includes a project to add 20 million high-frequency high-speed copper-clad plate production capacity. Furthermore, the company is optimistic about domestic FPC alternatives and lays out 1.2 million square meters of FPC projects through non-public funding projects in 2019, injecting strong impetus into the company's medium- to long-term development. Non-recurring profit and loss affect short-term performance, and future profitability improvements can be expected. Judging from profitability, the company's gross margin and net profit margin for the period were 21.47% and 4.48%, respectively, up 4.9pct and -0.63pct from the previous year; return on net assets (dilution) was 2.03%, down 0.32pct from the previous year. The gross margins of the company's copper foil, copper clad board and PCB were 26.64%, 11.80% and 9.50% respectively. The share of copper foil and copper clad board products in the first half of the year increased to 69.15%, an increase of 11.5 pct over the previous year, and product structure improvements raised the company's gross margin level; the year-on-year decline in the company's net profit margin was mainly due to non-recurring profit and loss of 5.7697 million yuan in the current period, compared to 5,0488 million yuan in the same period last year. The current sales expense ratio, management expense ratio, financial expense ratio, and R&D expense ratio were 2.57%, 4.35%, 4.26%, and 4.80% respectively. The total period expense ratio was 15.98%, a slight increase of 0.55 pct over the previous year. The company's inventory turnover days were 200.71, compared to 154.59 for the same period last year; accounts receivable turnover days were 97.26, compared to 138.27 for the same period last year. Judging from the company's capital structure and solvency, the company's balance ratio was 44.24%, which is basically the same as the same period last year; the company's current ratio and fluctuation ratio were 1.16 and 0.63, respectively, down from the previous year. Currently, the company's three business lines of copper foil, copper clad board, and PCB are all in the stage of capacity expansion and product upgrade. The decline in new production capacity and capital expenditure will have a certain impact on the company's current profitability, and the performance of the company's medium- to long-term strategy is worth paying attention to. Profit forecast and valuation We expect the company to achieve operating income of 1,681 billion yuan, 2.354 billion yuan and 3,955 billion yuan in 2019-2021, with year-on-year increases of 20.63%, 40.05% and 68.00% respectively; net profit attributable to shareholders of the parent company is 70 million yuan, 141 million yuan and 247 million yuan, with year-on-year increases of 103.92%, 100.07% and 75.32% respectively; EPS is 0.08 yuan, 0.15 yuan and 0.26 yuan, corresponding PE is 67.11, 33.54 and 19.13. For the first time, coverage was given an “increase in holdings” rating.