Key investment points The company's performance fell slightly short of expectations. The company announced its 2018 interim report. In the first half of the year, it achieved operating income of 2,333 million yuan, an increase of 14.37% over the previous year; net profit attributable to listed companies of 350 million yuan, an increase of 24.62% over the previous year; and deducted non-net profit of 285 million yuan, an increase of 29.37% over the previous year. The first half of the year was affected by trade friction between China and the US, and the operator's implementation of optical cables slowed down, causing the company's performance to fall slightly short of expectations. Profits grew steadily, and core business achieved relatively rapid growth. 1. The fiber-optic cable sector achieved relatively rapid growth: the company's fiber-optic cable sector revenue increased by 30.57% compared to the same period last year, with gross margin increased sharply by 7.36%, mainly due to the recent production of the first 300-ton optical fiber prefabricated rod project. At the same time, it received a significant increase in the supply of high-quality and cheap light bars from Corning Changxie. Combined with rising China Mobile collection prices, gross margin increased markedly; (2) Communication equipment sector product conversion, and the future can be expected: Affected by the adjustment of China Mobile's ODN equipment procurement model, gross margin fell 29.36% year on year. Decline At 7.17 percentage points, product performance declined to a certain extent; however, in this period, the company entered the high-margin private network communication field through an acquisition team, and SDN continued to gain strength. In the future, the communications equipment sector's share of the company's revenue will continue to increase, and gradually develop into one of the main businesses. (3) Internet security products achieved scale growth: Baizhuo Network actively explores market segments and new customers, and its business scale continues to grow, driving revenue in the Internet security sector to increase by 67.32% year-on-year. The operation is steady, the gross margin is stable, and the three-fee control is reasonable. The company's gross profit margin for the first half of the year was 28.86%, which is basically the same as 29.26% in the same period last year; the management expense ratio and sales expense ratio were 7.49% and 4.28%, respectively, 0.17 and 5.6 percentage points lower than the same period last year; financial expenses increased 4.2% from 3.1% in the same period last year, mainly due to an increase in bank loans during the reporting period and the corresponding increase in interest expenses. With new teams, new products, and new ideas, the company may look forward to future development. The new chairman Yan Yongqing, and executives Cai Wenjie and Chen Haibin have worked for many years in the field of operators and equipment vendors, and are rich in experience and industry resources. Lead the company to gradually divest non-main business, focusing on main equipment and optical fiber cables. The company gradually changed from an optical fiber optic cable-based company to a dual main business of equipment and optical fiber. The two main businesses target the same customer group and have a high degree of synergy. The company's subsequent development will be more steady and rapid. Risk factors: Demand for fiber optic cables falls short of expectations, and new product development falls short of expectations. Profit forecast and investment rating: Considering the delay in the implementation of optical fiber cables in the first half of the year, and the company's new business segment expected to bring good collaborative growth, the EPS forecast for 2018/19/20 was slightly adjusted from the original 0.63/0.67/0.76 yuan to 0.63/0.69/0.80 yuan, maintaining the “increase in holdings” rating.