From January to June 2011, the company achieved operating income of 1.346 billion yuan, an increase of 15.40% over the same period last year; operating profit of 137 million yuan, an increase of 43.62% over the same period last year; net profit of 86.56 million yuan belonging to the owner of the parent company, an increase of 46.77% over the same period last year; and basic earnings per share of 0.30 yuan.

The growth rate of income in the first half of the year was stable, and the performance increased significantly. The company is mainly engaged in the manufacture of automobile and motorcycle parts as well as aviation parts. In the first half of the year, the company's operating income increased by 15.40% compared with the same period last year; the comprehensive gross profit margin was 22.10%, which remained basically stable; and the expense rate during the period was 13.13%, down 0.90 percentage points from the same period last year. Due to the large increase in cash dividends received from AVIC Finance Corporation, Shanghai Keshida and Mitsui Huayang, the company's investment income in the first half of the year reached 32.93 million yuan, coupled with the increase in profits of some subsidiaries, the company's net profit increased by 46.77% compared with the same period last year.

Revenue from auto parts business is growing steadily. In the first half of the year, the company overcame the unfavorable situation of declining demand and rapid growth in the domestic auto market. The revenue from the auto parts business reached 1.239 billion yuan, an increase of 18.14% over the same period last year, accounting for 92.03% of the income. However, the gross profit margin still fell 2.12 percentage points year-on-year to 19.74%. The growth rate of the automobile industry has changed from the rapid growth in the previous two years to steady growth, and is expected to grow by 5% this year. The auto parts industry will grow faster than the whole vehicle, so we expect the company's auto parts revenue to maintain a growth rate of more than 15%, and the company's revenue and performance will also achieve steady growth.

The revenue of aviation products has increased significantly, and the growth momentum is good. Revenue from aviation products, another major business of the company, began to reverse the downward trend and return to rapid growth in the second half of 2010. In the first half of 2011, the revenue of the business reached 91.88 million yuan, an increase of 69.85% over the same period last year, and the gross profit margin was 39.54%, an increase of 5.24% over the same period last year. With the advent of opportunities for the development of China's navigation industry, the company's aviation products will have a broad space for development. It is expected that the revenue of aviation products will enter a period of rapid growth and become another major performance contribution point of the company. Moreover, as one of the main listing platforms of AVIC Tongfei, it is still possible to inject general aviation manufacturing-related assets to expand the revenue share of aviation products.

Earnings forecast and investment rating: we expect the company's earnings per share for 2011-2013 to be 0.52,0.61 and 0.72 yuan. Based on the latest closing price of 16.55 yuan, the corresponding dynamic P / E ratios are 32 times, 27 times and 23 times respectively. As the company's performance growth expectations are relatively robust, and there is still the possibility of injecting general aviation manufacturing-related assets, we maintain the company's "overweight" rating.

Risk tip: the risk that the business performance of auto parts is lower than expected; the risk of a sharp rise in the cost of raw materials.