Investment points: We maintained a positive view of Tsugami China after attending the performance conference, mainly because the company's order situation is ideal, and the shortage of parts supply is gradually improving. More importantly, management is confident of maintaining a stable gross profit margin this year. We believe this will help dispel investors' concerns. We raised our earnings forecasts for FY19 and FY20 by 6% and 10%, respectively, and added FY21 forecasts. Accordingly, we raised our target price from HK$12.6 to HK$13.3, based on 16x FY19 PE (no change in multiples), which is the historical average of the Tsugami Group (6101 JP). We maintain our buying rating and believe that Tsugami China will continue to be the main beneficiary of China's manufacturing upgrading. Core earnings for FY18 were better than expected. Tsugami China grew 72% year over year to 196 million yuan in fiscal year 18, close to the 70% increase in earnings that had been announced earlier. Strong profit growth was mainly driven by the following factors: (1) revenue rose 41% year over year to RMB 2.3 billion; (2) gross margin increased 2.6 percent year over year to 20.4%; and (3) net financial expenses fell 29% year over year. Although other expenses rose to $30 million from RMB 3.8 million in FY17, this was mainly due to a loss of about 15.33 million yuan from the sale of the plant and an exchange loss of about 11.47 million yuan due to the appreciation of the RMB. Additionally, we estimate that the company's management expenses include approximately 13 million listing expenses. If the above one-time expenses are deducted, the company's core net profit will reach 233 million yuan. The company proposes to pay a dividend of HK$0.16 per share, which is equivalent to a distribution ratio of 26%. Management maintained a more optimistic tone during the meeting. Although management did not clearly disclose order data, it stated that the current capacity utilization rate is high. Furthermore, management expects that the gross margin of FY19 is unlikely to be lower than FY18, mainly because the company's production efficiency continues to improve, and the gross margin of Dota lathes is increasing due to scale effects (in the past, the gross margin of Dota lathes was lower than the company's average). Production capacity upgrades are progressing well. Currently, Tsugami China has four plants in Pinghu, Zhejiang, with an actual production capacity of 9,000-10,000 units. The company is currently upgrading one of its plants, which is expected to be completed in April 2019, at which time the overall production capacity will reach 12,000-14,000 units. Meanwhile, ground construction for the 1,200-unit new production site in Anhui has been completed, and plant construction is about to begin. The new base is expected to be put into operation in FY21. Risk factors: (1) an unexpected decline in investment in manufacturing; (2) potential production delays due to a shortage of key components; (3) failure to maintain the current business relationship with the Tsugami Group (6010 JP).