Incident: The recent Politburo meeting of the Central Committee called for “accelerated development of biomedicine, medical equipment, 5G networks, industrial Internet, etc.” Key investment points: The company is a key enterprise in the development of new materials for non-ferrous metals in China. The company is mainly engaged in the development and production of new materials such as rare earth materials, photoelectronic film materials, biomedical materials, rare metals and precious metals, infrared optical and optoelectronic materials, and optical fiber materials. There are 10 companies controlled or indirectly controlled by the company, of which 4 are more important subsidiaries, namely: Youyan Yijin New Materials Co., Ltd. (mainly engaged in the development and production of rare earth magnetic effect materials, rare earth luminescent materials, rare earth metals and alloys, rare earth compounds, etc.), Youyan Rare Earth New Materials Co., Ltd. (mainly engaged in the development and production of new materials for microelectronics, optoelectronics films, new biomedical materials and precious metal materials), Youyan Optoelectronic New Materials Co., Ltd. (mainly engaged in the development and production of infrared optics and optoelectronic materials), Youyan Guojing New Materials Co., Ltd. (mainly engaged in the development and production of infrared optics and optoelectronic materials), and Youyan Guojinghui New Materials Co., Ltd. (Engaged in the development and production of infrared optics and optical fiber materials). Judging from the company's 2018 revenue structure, high-purity/ultra-high purity metal materials business accounted for 36%, other businesses mainly platinum precious metals accounted for 31%, rare earth materials accounted for 26% of the business, and the three accounted for 93% of total revenue. Judging from the company's gross profit structure in 2018, high-purity/ultra-high purity metal materials accounted for 41% of gross profit, and rare earth materials accounted for 28% of total gross profit. Together, the two accounted for 69% of total gross profit. The company's performance has maintained steady growth. In recent years, the company's operating income has maintained a steady growth trend. In the first three quarters of 2019, the company achieved operating income of 7.216 billion yuan, an increase of 123.12% over the previous year; realized net profit attributable to shareholders of the parent company of 75.14 million yuan, an increase of 10.32% over the previous year; and realized net profit attributable to shareholders of the parent company after deduction of 42.72 million yuan, an increase of 13.73% over the previous year. Achieved earnings of 0.09 yuan per share. The company's sputtering target products achieved a breakthrough. The company has now achieved integrated operation from ultra-high purity metals to targets, and has achieved technological breakthroughs in products such as ultra-high purity metals, copper targets, cobalt targets, nickel-platinum alloy targets, etc. 8-12 inch target products are progressing steadily in the market, and have now become a stable supplier for many world-class integrated circuit companies including TSMC, Grofonte, Intel, SMIC, and Changjiang Storage. The subsidiary Youyan Yijin is the largest high-end electronic information materials R&D and manufacturing enterprise with the most complete range of materials in China. Its products include a full range of high-purity metal materials, sputtering targets, and evaporation coating materials. It is the only domestic industrialization platform with vertically integrated R&D and production from ultra-high purity raw materials to sputtering targets and evaporation film materials. In 2018, the company's sales of high-purity rare earth metals and target products increased by 41% year on year, and gross profit increased by 42% year on year. The rapid development of the domestic semiconductor industry is driving demand for high-purity sputtering targets. High-purity sputtering targets have emerged along with the development of the semiconductor industry. Semiconductor targets are key raw materials for the preparation of integrated circuits, which require ultra-high purity metals, high-precision dimensions, and high integration. As the production capacity of global wafer manufacturers gradually shifts to China, the driving demand for semiconductors will be further released. According to the International Semiconductor Equipment Materials Industry Association (SEMI), 62 new fabs will be built worldwide by 2020, of which 26 will be located in China, accounting for up to 42%. According to the forecast of the China Electronic Materials Industry Association, with the popularity of 12-inch wafers, a number of domestic 12-inch semiconductor factories will be put into operation between 2017-2020, and it is predicted that the domestic target market will grow by more than 15%. In terms of policy, the goal in “Made in China 2025” is for the wafer self-sufficiency rate to reach 40% by 2020 and 50% by 2025. Semiconductors are booming domestically. At the end of 2018, the country's duty-free period for imported targets ends, which will also facilitate the upgrading and development of domestic target companies. The company's germanium products maintain a leading position. The subsidiary Youyan Optoelectronics has the world's leading infrared germanium single crystal production line. It is the world's main supplier of infrared optical germanium sheets and infrared LED substrates. It occupies about 25% of the global market share with advanced production technology and stable product quality. The subsidiary Yuxian Guojinghui has a domestic market share of about 50% for germanium material products for optical fibers. It is currently the only domestic unit that can mass-produce large-size CVD ZnS products, and has played a key role in promoting the development of advanced infrared technology in China. In 2018, the company's infrared germanium production and sales volume exceeded 10 tons for the first time, accounting for more than 50% of the domestic market. Sales volume increased 26% year on year, revenue increased 46% year on year; the development effect of the low misplaced germanium monocrystals market was obvious, and sales increased 50% year on year. Along with the development trend of high-end and functional civilian equipment, demand for infrared germanium lenses and lenses continues to increase, driving demand for germanium chips for infrared optics, and new application requirements are also being developed continuously. Furthermore, in the field of germanium materials for optical fibers, with the development of the domestic 5G industry and the full expansion of network construction, the fiber optic cable market may usher in a new round of development, and future market demand will show a growing trend. Profit forecast and investment advice: The company's fully diluted EPS in 2020-2021 is expected to be 0.19 yuan and 0.21 yuan respectively. Based on the closing price of 16.61 yuan on February 25, the corresponding PE in 2020-2021 will be 87.3 times and 77.4 times, respectively. The company's current valuation is relatively high compared to the industry level, but considering that the company is a leader in the field of new non-ferrous metal materials in China, benefiting from the rapid development of the domestic semiconductor and 5G industries, autonomy and control is an important national strategy, the company will benefit from this. Long-term development prospects are broad, and the company has been given an investment rating of “increased holdings” for the first time. Risk warning: (1) downstream industry development and product demand fell short of expectations; (2) the company's product development progress fell short of expectations.