Summary of the report:

Once again, the performance was significantly lower than expected. Income growth was slightly lower than expected, while net profit growth was significantly lower than expected. In the first half of 2011, the operating income was 936 million yuan, up 22% from the same period last year; the operating profit was 35 million yuan, down 44% from the same period last year; and the net profit of shareholders belonging to listed companies was 30 million yuan, down 43% from the same period last year. The company expects net profits belonging to shareholders of listed companies to fall by 20% or 50% from January to September 2011 compared with the same period last year. Profitability declined rapidly, below expectations. The gross profit margin of Yichang in the first half of 2011 was 17.3%, down 1.2% from the same period last year; the three major expense rates were 13.3%, up 3.2% from the same period last year; and the net profit rate was 3.4%, down 4.1% from the same period last year. The rate of increase in management expenses is higher than expected. Expenses are mainly due to a sharp increase in the rate of management expenses, with a management expense rate of 9.8% in the first half of the year, an increase of 3.3% over the same period last year; sales expense rate and financial expense rate have not changed much.

Reason: both demand and cost, the increase in management expenses is too large. 1. The growth rate of the color TV industry was lower than expected, with an increase of 1% in the first half of the year, of which LCD TV grew by 9%. The company's black electricity structure revenue fell 2% in the first half of the year compared with the same period last year. two。 Due to the significant increase in raw material costs and labor costs, the gross profit margins of the company's various sub-products have declined. 3. Management expenses increased by 84.68% over the same period last year, as the company increased its R & D investment, and R & D expenses increased by more than 300% compared with the same period last year.

Downgrade to "neutral". We have sharply lowered Yichang's profit forecast for this year. We expect the operating income of Yichang to grow by 27%, 23% and 20% respectively from 2011 to 2013, and the net profit of shareholders belonging to the parent company will increase by-10%, 57% and 31% respectively. In 2011, the PE was 29 times, and the compound growth rate in the next three years was about 23%. At present, the valuation of the company is on the high side. Considering that the color TV and automobile industries in the lower reaches are still in the doldrums, and the prosperity of the white TV industry has passed, we will downgrade the rating from "overweight" to "neutral".

Risk tips: (1) downstream demand did not recover as scheduled; (2) diversification process is slower than expected; (3) costs rise: raw material costs and labor costs rise rapidly.