Matters: The company issued an announcement: From January to June 2019, the company achieved operating income of 390 million yuan, +4.72% over the same period last year, and realized net profit of 17 million yuan, or -6.70% year-on-year. We achieved a gross profit margin of 17.5% and a net profit margin of 4.64%, which is basically the same as the same period last year. The company's net operating cash flow was 42 million yuan, compared to -142 million in the same period last year, turning a loss into a positive one. Comment: The modified plastics industry is in a slump, and the company is actively developing markets and customers to maintain the stability of its main business. Due to a combination of factors such as the slowdown in economic growth due to increased uncertainty in the global economy, the continued decline in domestic consumption, and the implementation of the six emission standards of automobile countries, etc., the automobile and home appliance markets in the main application areas of the company's modified polymer materials showed a slowdown or even decline in growth. In the first half of the year, China's automobile sales fell 12.4% year on year, and retail sales in the home appliance market fell 2.1% year on year. Faced with the low level of prosperity in the industry, the company strived to cooperate deeply with existing customers and actively develop new product applications and customers, thus maintaining a relatively stable sales scale and profit level. Sales revenue increased slightly by 4.72%, and net profit fell slightly by 6.70%, lower than the decline in automobiles. In terms of cash flow, due to large reserves of raw materials and negative operating cash flow last year; cash flow improved markedly due to payment recovery in the first half of this year. The acquisition of Deqing Cosai to lay out PTFE for high-frequency PCBs broke the monopoly between Japan and Europe. The company acquired 51% of Deqing Cosai's shares with its own capital, enriched and extended the company's product chain, formed a complete polymer material solution from base stations to terminals in the 5G industry, successfully realized large-scale production of PTFE film materials for high-frequency communication circuit boards, and can provide film material products with different performance requirements according to customer needs. The performance of related materials has been tested to be at the leading level in the industry, and the monopoly position of basic materials for high-frequency communication circuit boards in Japan and Europe has been broken. PTFE is the best filler material for 5G base station PCBs, with a space of nearly 13 billion dollars. The company's PTFE film materials lead the country. The product has entered the customer verification stage, and after passing, it will benefit greatly from the 5G wave. Benefiting from 5G pre-commercialization and accelerated import substitution, LCP material sales achieved a breakthrough. The company acquired all of Samsung Precision's LCP business in 2014. It is the only company in the world that can continuously produce 3 types of LCP resins and composites. The current production capacity is 3,000 t/a. Material products have been successfully promoted and applied in 5G high-speed connectors, vibrators, etc., and because traditional materials cannot adapt to environmental protection and low water absorption requirements under new communication conditions, the company's LCP materials have successfully replaced traditional material products. Furthermore, the company has successfully developed film and fiber-grade LCP, and is expected to break through in the application of membrane materials and achieve import substitution. Benefiting from the pre-commercialization of the 5G industry and the acceleration of import substitution in the domestic supply chain, the company's LCP material sales increased 108% over the same period last year. Earnings forecasts, valuations and investment ratings. The automobile and home appliance market continues to decline. We adjusted the company's net profit forecast for 19-21 to 0.42/0.53/0.65 billion yuan (the original forecast value for 19-20 was 0.55/0.80 billion yuan), corresponding to EPS of 0.35/0.45/0.55 yuan, respectively. The current stock price corresponding to PE is 62/49/40 times, respectively; considering the rapid development of 5G and the increasing urgency of import substitution under the Sino-US trade war, the company used the scarcity of related materials. Combined with 65X PE level expectations, the target price was adjusted to 22.8 yuan. to the “Recommended” rating. Risk warning: Product prices have declined sharply; project construction and production have fallen short of expectations; safety and environmental risks.