Company News The company released its 2019 three-quarter report on October 24. The report revealed that the company's operating income for the period was 2,777 billion yuan, up 0.17% year on year; realized net profit of 390 million yuan, down 9.83% year on year; net profit after deducting non-return to mother was 367 million yuan, down 10.84% year on year. Looking at the third quarter of a year, the company achieved revenue of 925 million yuan, a year-on-year decrease of 3.33%; realized net profit of 126 million yuan, a year-on-year decrease of 17.70%; and realized net profit without deduction of 111 million yuan, a year-on-year decrease of 25.94%. Case review: Steady adjustment of financial indicators Judging from the three-quarter report, the company's gross profit margin for the first three quarters was 30.62%, a slight decrease of 2.21pct; the net interest rate was 14.06%, down 1.56pct year on year. The company's R&D expenses and management expenses increased significantly year-on-year, mainly due to the impact of high-frequency high-speed PCB product development; asset turnover 0.54, 0.57 in the same period last year; return on net assets was 12.09%, down 4.26pct year on year; the decline in net interest rate and asset turnover during the period affected the ROE index; the number of days in the company's inventory turnover 46.93, 46.04 for the same period last year. The company's accounts receivable turnover was 70.86, and 68.84 in the same period last year. The company's operating capacity index fell slightly year on year; the company's balance ratio was 33.27%, down 9.29 pct year on year. The current ratio and velocity ratio were 1.37 and 1.15, respectively, and 1.49 and 1.26, respectively, for the same period last year. Overall, the increase in the company's R&D expenses and management expenses and the export side have a certain impact on short-term financial indicators. In the future, it is expected that the fixed asset turnover ratio and product structure of PCB companies looking to upgrade products in the short term will have a big impact on performance through product scale effects. Although the company is still in the stage of profitability adjustment, combined with marginal changes in the company's product structure and the company's layout on domestic alternative tracks such as FPC, HDI, and IC carrier boards, we have always believed that the company's growth is worth looking forward to. Looking at the application area distribution of the company's PCB products in 2018, communications, industrial control, automotive electronics, medical equipment and security accounted for 30%, 25%, 12%, 10% and 10% respectively. Although the company's profitability is still being adjusted due to downstream demand, the company's product structure has experienced significant marginal changes in the first half of the year, including the delivery of supercomputing high-speed boards and high-frequency high-speed board products at base stations. We believe that the production capacity of high-frequency high-speed PCBs requires long-term process accumulation by enterprises to ensure product yield. The company's ability to deliver high-frequency high-speed PCB products at the time point of large-scale deployment of 5G base stations is expected to seize market share next year, and drive product structure optimization and profitability improvement. The release of performance is worth paying attention to. From a long-term perspective, the company acquired FPC assets Sandeguan (Zhuhai) and IC carrier board assets Knopway (Kunshan), with output value plans of 4 billion yuan and 1 billion yuan respectively. Future growth is expected to benefit from the growth of the FPC and IC carrier board businesses. Profit forecast and valuation We expect the company to achieve operating income of 4003 billion yuan, 4.924 billion yuan, and 6.352 billion yuan in 2019-2021, with year-on-year increases of 9.50%, 23.00% and 29.00% respectively; net profit attributable to shareholders of the parent company was 651 million yuan, 854 million yuan and 1,139 million yuan, year-on-year increases of 16.16%, 31.14% and 33.36%, respectively; EPS was 0.74 yuan, 0.98 yuan and 1.30 yuan, respectively. 18X and 14X. Maintain an “gain” rating for the next six months.