The 1Q18 results were in line with expectations Sichuan Changhong Company announced 1Q18 results: operating income was 18.85 billion yuan, up 13.3% year on year; net profit attributable to the parent company was 61.12 million yuan, up 85.3% year on year, corresponding to earnings of 0.01 yuan per share. Net profit after deducting non-profits was 35.8 million yuan, up 74.2% year on year. Holding subsidiaries: 1) Meiling Electric's 1Q18 revenue was 4.25 billion yuan, +15.8% year on year, net profit was 56.26 million yuan, down 8.2% year on year; 2) Huayi reduced 1Q18 revenue by 2.36 billion yuan, up 12.6% year on year, and net profit was 1.34 million yuan, down 75.2% year on year. The year-on-year low base led to a sharp increase in 1Q18 net profit: 1) The subsidiary Meiling Electric benefited from active inventory preparation before the peak air conditioning season, and achieved relatively rapid revenue growth, driving the company's revenue growth. 2) 1Q18 panel prices continued to decline, but due to poor industry competition and weak company operating efficiency, 1Q18 gross margin still fell 0.6 pct to 12.9% year on year. The sales expense ratio remained flat, and the management expense ratio decreased by 0.7 pct year on year; the financial expenses ratio increased 0.6 pct year on year, driving the net profit margin slightly increased 0.1 pct to 0.3% year on year. 3) The sharp increase in net profit was mainly due to the low year-on-year base in 1Q17. In 1Q17, the company's net profit was 32.98 million yuan, down 85% year on year. Trends 2018 results remain under pressure: 1) The competitive landscape has improved slightly but is still poor. Panel prices continue to fall, and cost pressure has eased, but the company's operating efficiency is weak, and it is still uncertain whether it can be transmitted to the profit side. 2) The rate of increase in the price of Baidian raw materials is slowing down, but the company's air conditioning sales are facing the problem of a high year-on-year base due to the 1Q17 air conditioner inventory supplement market. Furthermore, the refrigerator's ability to position second-tier brands at a premium is weak. 3) Huayi Compression is an accessories company, and its premium ability is not as good as that of brand companies. Profit forecast We maintained our 2018 profit forecast of 0.10 yuan and introduced a profit forecast of 0.11 yuan for 2019, an increase of 34%/7% year-on-year respectively. The valuation and proposed company's current stock price corresponds to 30/28 times P/E in 18/19. Maintaining a neutral rating, the 2018 performance remains under pressure. The target price was reduced by 10% to 3.62 yuan, corresponding to 35/33 times P/E in 18/19. The target price has room for 17% increase compared to the current stock price. Risk The risk of competition in the color TV market.