Incident: In the first half of the year, the company achieved operating income of 86.057 million yuan, a year-on-year decrease of 15.4%; net profit attributable to shareholders of listed companies was 307.37 million yuan, a year-on-year decrease of 28.8%; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 28.325 million yuan, a year-on-year decrease of 25.9%. Earnings per share were $0.49. The second-quarter results declined sharply, and the peak sales season in the second half of the year is expected to improve: the first half of the year's results fell short of expectations. Among them, revenue for the first quarter fell 1.7%, net profit fell 15.4%, revenue for the second quarter fell 24.7%, and net profit fell 37.4%. The main reasons for the decline in performance are: 1. The bus market is sluggish. 2. Non-operating income decreased by 8.114 million yuan compared to the same period last year. The main reason was that there were no government grants in the first half of the year, and no value-added tax rebates of 3.885 million yuan were received in the current period for the fourth quarter of 2014, and all government science and technology subsidies from the previous period have been carried over. When the peak season for the automobile market arrives after September, we expect the company will benefit from increased bus sales, and performance is expected to improve. Comprehensive gross margin increased: The company's comprehensive gross profit margin in the first half of the year was 57.8%, up 2.07 percentage points year on year. In an environment where overall production and sales of large and medium-sized buses have declined, the company's overall gross margin has increased mainly due to high-margin products, which account for 60% of the company's revenue - the gross margin of CAN bus products increased by 1.85 points. Reiterate the investment logic: 1. The profit margin is significantly higher than the industry average, and the profitability is strong. The company's gross margin continued to rise. The consolidated gross margin reached 57.8% in the first half of 2015, and the net profit margin was 36%. However, the average gross margin of the entire auto parts industry is only about 15%, and the average gross profit margin of automotive electronics manufacturers is about 20%. The profit margin level of the company's products is significantly higher than the industry average, and the profitability is strong. Among the company's various products, CAN bus products have the highest gross margin, nearly 60%. 2. Vehicle electronics are growing rapidly, and there is a large space for bus body electronic control systems. Due to increased pressure on energy saving and environmental protection, the future CAN bus control system market space is broad, and with the assembly rate of nearly 100% of CAN bus control systems in European and American countries, there is plenty of room to increase the assembly rate of CAN bus control systems for large and medium-sized buses in China. 3. The company has obvious advantages and will fully benefit from the rapid penetration of the CAN bus control system. The company is in a leading position in domestic bus CAN bus control system products. It mainly supports high-quality domestic bus OEMs, and will fully benefit from the rapid penetration of CAN bus control systems in the future. 4. IPO fund-raising projects relieve pressure on production capacity and optimize product structure. Currently, the production capacity of the company's automotive CAN bus control systems is overloaded, and the capacity utilization rate is over 120%. The construction period for the automobile CAN bus control system production capacity expansion project for the IPO fund-raising project is 2 years. After the project is completed and delivered, the insufficient production capacity of the company's CAN bus control system products will be greatly improved. Performance forecast and valuation: Lowering the company's performance forecast, we forecast the company's 2015-2017 EPS to be 1.00 yuan, 1.25 yuan, and 1.59 yuan, respectively, 56 times, 45 times, and 35 times. Give it an “gain” rating. Risk warning: Bus production and sales may continue to decline, IPO fund-raising projects or falling short of expectations.