Events:

The company released the 2015 mid-term report: in the first half of the year, the operating income was 110 million yuan, down 9.87% from the same period last year, and the net profit was 8.3756 million yuan, down 46.54% from the same period last year.

Main points of investment:

The sharp decline in performance is mainly due to the downturn in the industry.

1) the company's customers are mainly Weichai, Yuchai, Chaochai, Xichai and other diesel engine manufacturers, which are greatly affected by the economic cycle.

In the first half of the year, due to the impact of the economic downturn, commercial vehicle sales fell 14.41%, of which heavy trucks fell 32.93%, resulting in a decline in the company's turbocharger sales. 2) at present, the company is mainly based on small turbochargers, and the price is declining in the case of low downstream demand. These are the main reasons for the 12.69% decline in the company's main business revenue and the 3.51% year-on-year drop in gross profit margin. 3) the rapid growth of sales and management expenses and the failure of Connor Seiko to put into production further led to a significant decline in the company's profits beyond income.

Actively develop new products and new customers, the company's performance is expected to stabilize and recover.

1) as the railway, water conservancy and other infrastructure projects invested by the government to maintain growth in the first half of the year are expected to start construction in the second half of the year, thus contributing to the gradual stabilization and recovery of the economy, the commercial vehicle market is expected to usher in a slow period of repair. the decline in sales is expected to narrow. 2) at the company level, on the one hand, we will actively develop and mass produce high-end commercial vehicles and large turbochargers for marine and generator sets, at the same time, the newly developed customers of diesel engines and commercial vehicles, such as Yuchai, Dongfeng, Qingling, Jiangling and so on, it is expected that the volume will begin to be released one after another this year, which will help the company to surpass the diesel engine market boom cycle and enhance its market share. On the other hand, through actively entering the market sexy automotive gasoline engine turbocharger field is a necessary step for the company to open up the growth space, which is conducive to improving the company's product and customer structure, enhancing the company's profitability, and providing support for the company's rapid growth in medium-and long-term performance in the future, which can be carried out through independent research and development, joint ventures or mergers and acquisitions of high-quality targets. Specifically, the company carried out four R & D projects in the first half of the year, and the progress of completion reached 40-60%. We expect to start bulk supply in the second half of this year. Summing up the two aspects of analysis, we believe that the company's performance is expected to stabilize in the second half of the year, month-on-month improvement is a high probability event, and is expected to recover next year. 3) the senior executives of the company are getting younger, and some executives, such as the general manager and deputy general manager, have not directly or indirectly held equity in the company. We speculate that in the future, the company is expected to stimulate the enthusiasm of these young executives and core technical personnel through management or employee stock ownership and equity incentives, which is conducive to the medium-and long-term healthy and rapid development of the company.

Profit forecast, downgraded to "overweight" rating.

According to the above analysis, we expect the company to achieve operating income of 2.47pm 2.97 / 402 million yuan in 2015-17, an increase of 1.47pm 20.24max 35.35% over the same period last year, and realize a net profit of 0.24pm 0.29 / 43 million RMB, an increase of-17.52max 20.34max 51.47% over the same period last year, corresponding to an EPS of 0.14max 0.17max 0.26 yuan per share. We believe that the company is in the product research and development reserve period, with the company actively developing new customers, with the release of production capacity, next year is expected to exceed the industry business cycle to achieve rapid growth, downgraded to "overweight".

Risk hint: the mass production of new customers and new product development is lower than expected; the cost growth during the company period is higher than expected