In the first half of 2010, the company achieved operating income of 4.881 billion yuan, an increase of 11% over the previous year; operating profit of 290 million yuan, an increase of 4.24 times over the previous year; and net profit attributable to owners of the parent company of 288 million yuan, an increase of 4.57 times over the previous year. EPS: 0.18 yuan, slightly higher than our expectations. Operating income has risen, and gross margin has declined. In the first half of the year, the company sold 125,000 cars, up 12.3% year on year. Revenue growth was lower than sales volume growth. The main reason was that the company's main model, the Xiali, and the “Wei” series were low to mid-range models. Market competition intensified, and the company promoted products at reduced prices. Among them, the gross margin of car sales fell by about 5 percentage points year on year. The company already had a certain amount of inventory backlog in the first half of the year, and preparations for impairment totaled 63.98 million yuan. It is expected that the company's gross vehicle sales margin will continue to decline slightly in the second half of the year. Investment returns have increased dramatically, contributing to major profits. The company achieved investment income of 719 million yuan, an increase of 1.82 times over the previous year. The headquarters, including merger companies, lost a total of 430 million yuan. Almost all of the investment income comes from Tianjin FAW Toyota, which has a stake. Although the investment income of Jinhe River Engineering increased 1.27 times over the same period last year, it contributed only 630,000 yuan in total, which did not have a significant impact. Investment highlights. 1) The engine project with an annual output of 400,000 units has been put into operation. The first half of the year achieved revenue of 30.14 million yuan, an increase of 65 times over the previous year. The engine gross margin was as high as 32%. It is expected that with the gradual increase in engine volume and the increase in revenue share, it will stabilize or increase gross margin. 2) Huali's 150,000 vehicle production base and 400,000 transmission projects currently being built by the company will help improve the company's production capacity and product grade. 3) In the second half of 2010, the company will successively launch new V2 Sedan, Xiali A+, 2010 Vizhi, and 2011 Xiali N5 models. The introduction of these products is a necessary measure to change the aging of existing products. Investment advice. It is estimated that the company's EPS for 2010-2012 will be: 0.35 yuan, 0.4 yuan, and 0.43 yuan, respectively. Based on the calculation of the stock price of 8.66 yuan on August 31, the dynamic PE was: 24 times, 22 times, and 20 times, respectively, maintaining a “neutral” investment rating for the time being. Risk warning. Vehicle sales have declined, and steel prices have risen.