Main points of investment:

The company released its 2016 semi-annual report and announced that the non-public offering had been approved by the CSRC. In the first half of the year, the company achieved operating income of 437 million yuan,-5.30% compared with the same period last year, and realized a net profit of 38.04 million yuan, an increase of 24.78% over the same period last year, corresponding to EPS0.15 yuan. In the second quarter, the net profit was 23.94 million yuan, an increase of 34.9% over the same period last year, in line with expectations. Benefiting from the low price of raw materials and the devaluation of RMB, the company's gross profit margin and net profit margin continue to rise, and the performance continues to grow steadily. At the same time, the approval of the first refinancing since the listing of the company has opened the first step of the company's great-leap-forward development, maintaining the company's EPS of 0.30 EPS 0.32 yuan in 2016-2018 (not considering additional issuance), "overweight" rating, and the target price is 21.08 yuan.

Benefiting from the low price of raw materials + the depreciation of RMB, the gross profit margin and net profit margin continued to rise. In the first half of the year, the price of the main toolbox cabinets increased and fell, and continued to grow steadily, benefiting from the low purchasing cost of steel, the main raw materials, and the continued increase in gross profit margin. The company's products are mainly exported to Europe and the United States, benefiting from the devaluation of RMB in the first half of the year, resulting in an exchange gain of 3.615 million yuan. In the second half of the year, it is expected to benefit from export growth and exchange gains driven by the devaluation of the RMB, while steel prices are stable, and gross and net profit margins are expected to remain stable.

The non-public offering has been approved by the SFC, starting the first step of great-leap-forward development. As the first capital market refinancing since the company went public in 2007, the overall progress of the non-public offering is slightly higher than expected. This increase shows that the company has begun to attach importance to listed companies as the operating platform of the capital market, increasing the proportion of shareholders' high equity (59.87%) + external high-quality assets (Tongrun auto parts + Tongrun drive equipment). There is a lot of room for asset securitization and extension expansion in the future. The landing of this increase will also open the first step of the company's great-leap-forward development.

Catalyst: implementation of non-public offering; expected promotion of asset securitization or extension.

Core risk: asset securitization or extension expansion is blocked; fixed increase promotes low expectations.