The investment proposal was due to illegal guarantees from Longxin Technology's majority shareholders, Longxin Technology's capital turnover difficulties, and operating pressure. We downgraded Coney's electromechanical rating to neutral and the target price to 9.3 yuan. The reason is as follows: The former legal representative of Longxin Technology illegally occupied Longxin Technology's cash, creating liquidity risks. Longxin Technology was acquired by Coney Mechatronics in 2017. It is a 100% holding subsidiary of the latter. The use of its 313 million yuan capital was restricted because its former legal representative, Liao Liangmao, allegedly used the 400 million yuan guarantee in the name of Longxin Technology in violation of regulations. The guarantee occurred prior to the merger and acquisition, but due to the illegal operation of Xiamen International Bank, Longxin Technology's deposit collateral risk was not promptly identified. At the end of 2017, Longxin Technology's cash balance was only 380 million yuan, which directly affected production and operation. In addition, Liu Liangmao and his co-actors pledged 40.9 million shares of Coney Electromechanical shares in violation of regulations, accounting for 4.11% of the company's total share capital. Liao Liangmao's remaining 33.196,000 shares have been judicially frozen. Longxin Technology's annual operating profit is uncertain, and we need to pay attention to the risk of impairment of goodwill. According to the promise made at the time of acquisition in 2017, Longxin Technology promised net profit of not less than 238/308/388 million yuan from 2017 to 19; the 2017 promise has been completed. Considering that Longxin Technology's capital turnover may be difficult, even though Coney Electromechanical has already injected working capital, there is still uncertainty about its profit in 2018. In particular, Coney Mechatronics acquired Longxin Technology and formed a goodwill of 2.27 billion yuan. If Longxin Technology's annual profit is insufficient, performance promises, it is necessary to pay attention to the potential risk of impairment of goodwill. Management is taking corrective measures. First, in order to ensure the smooth implementation of Longxin Technology's performance compensation, Liao Liangmao's shares have been judicially frozen totaling 33.2 million shares, with a current market value of about 300 million yuan. Meanwhile, Liao Liangmao pledged 20% of his shares in Dongguan Jinyuyuan Instruments and 84% of Jiangxi Longyao Technology's shares to Connie Mechatronics. After Longxin Technology's lack of supervision is revealed, the management team may undergo major changes. We are the biggest difference from the market. We believe that there is great uncertainty about the impact of Longxin Technology's majority shareholders taking up capital, and future corporate integration may be risky. Potential catalyst: Currently, Liao Liangmao's non-compliance guarantee situation is still being verified. Future disclosure of specific circumstances and Longxin Technology's performance falling short of expectations may pose further downside risks. Profit forecast and valuation Due to Longxin Technology's business risks, we lowered Longxin Technology's profit forecast (but still fulfilled its performance promise) and lowered Coney Electromechanical's 2018/19 profit forecast by 10% and 15% to 0.57/0.70 yuan; due to corporate governance risks and corporate integration risks, we lowered the company's target price by 59% to 8.0 yuan, corresponding to 14x 2018 target P/E. Downgraded the rating to neutral. The amount of the risk violation guarantee exceeded expectations, and substantial impairment of goodwill was calculated, etc.