Incidents: In the first half of the year, the company achieved operating income of 86.057 million yuan, down 15.4% year on year; net profit attributable to shareholders of listed companies was 307.37 million yuan, down 28.8% year on year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 283.25 million yuan, down 25.9% year on year. Earnings per share were $0.49. The performance of the second quarter declined seriously, and the peak sales season in the second half of the year is expected to improve: the performance for the first half of the year fell short of expectations. Among them, revenue for the first quarter fell 1.7%, net profit fell 15.4%, revenue for the second quarter fell 24.7%, and net profit fell 37.4%. The main reasons for the decline in performance are: 1. The bus market is sluggish. 2. Non-operating income decreased by 8.114 million yuan compared to the same period last year. The main reason is that there were no government subsidies in the first half of the year, and the current period did not receive a value-added tax refund of 3.885 million yuan in the fourth quarter of 2014, and all government science and technology subsidies from the previous period have been carried over. With the arrival of the peak automobile market season after September, we expect the company to benefit from the increase in bus sales, and performance is expected to improve. Consolidated gross margin increased: In the first half of the year, the company's consolidated gross profit margin was 57.8%, up 2.07 percentage points from the previous year. In an environment where the overall production and sales of large and medium-sized buses have declined, the company's overall gross margin has increased, mainly due to a 1.85 point increase in gross margin of CAN bus products, which account for 60% of the company's revenue. Reiterate the investment logic: 1. The profit margin is significantly higher than the industry average, and the profitability is strong. The company's gross margin continues to rise. In the first half of 2015, the comprehensive gross margin reached 57.8%, and the net profit margin was 36%. However, the average gross margin of the entire auto parts industry is only about 15%, and the average gross profit margin of automotive electronics manufacturers is about 20%. The profit margin level of the company's products is significantly higher than the industry average, and the profitability is strong. Among the company's various products, CAN bus products have the highest gross margin, nearly 60%. 2. Automotive electronics are growing rapidly, and there is a lot of space for bus body electronic control systems. Due to the increasing pressure on energy saving and environmental protection, the future CAN bus control system market space is broad, and the assembly rate of bus CAN bus control systems in Europe and the US is close to 100%, so there is a lot of room for improvement in the assembly rate of CAN bus control systems for large and medium-sized buses in China. 3. The company has obvious advantages and will fully benefit from the rapid penetration of the CAN bus control system. The company is in a leading position in domestic bus CAN bus control system products, mainly supporting high-quality domestic bus OEMs, and will benefit fully from the rapid penetration of CAN bus control systems in the future. 4. IPO fund-raising projects relieve pressure on production capacity and optimize product structure. Currently, the production capacity of the company's automobile CAN bus control system is overloaded, and the capacity utilization rate is above 120%. The construction period for the automobile CAN bus control system production capacity expansion project for the IPO fund-raising project is 2 years. After the project is completed and delivered, the insufficient production capacity of the company's CAN bus control system products will be greatly improved. Performance forecast and valuation: Lowering the company's performance forecast, we forecast that the company's 2015-2017 EPS will be 1.00 yuan, 1.25 yuan, and 1.59 yuan, 56 times, 45 times, and 35 times, respectively. Give it an “Overweight” rating. Risk warning: Bus production and sales may continue to decline, IPO fundraising projects, or falling short of expectations.