According to a report published by Citi, Coolpad (02369.HK) benefited from strong growth in mainland smartphones in 2010-14. However, the bank expects its profit in 2015/16 to decline, as many manufacturers (including Coolpad) plan to launch low-cost 4G phones in the second half of this year, which will put pressure on Coolpad's profit margins. Furthermore, the surge in online sales channels for smartphones will dilute the profit margins of coolers. In the long run, the bank believes that the upward space will come from its service/software sector, but it will take time for the group to realize the potential of this business, so it gave it a “neutral” rating for the first time, with a target price of 1.54 yuan. According to Citigroup, Coolpad had excellent interim results. Profit increased by 204% on a semi-annual basis and 94% on a yearly basis. It is estimated that it shipped 24 million smartphones in the first half of the year. Furthermore, gross margin rose from 12.8% in the second half of last year to 13.6% in the first half of this year. However, Coolpad will face challenges in the second half of the year. The Group maintains its annual smartphone shipment target of 60 million units (the bank expects 50 million units). Coolpad plans to implement its goals by launching low-cost 4G phones, focusing more on online sales channels, and expanding international channels. However, Citi believes that the first two measures are likely to put pressure on profit margins, while the third will take some time to achieve significant growth. Citi estimates that the growth in smartphone shipments in the mainland will slow to 15%/9% in 2015/2016, respectively. Coolpad shipments are expected to increase by 20%/19% in 2015/16, outperforming the market. However, profit margins are under pressure, and profits are expected to fall by 15%/11%, respectively.