Key investment points: The results of the interim report exceeded expectations, and bicycle profits increased dramatically. In April 2017, Zotye Auto disclosed a net profit of 200 to 230 million yuan, +440% to +520% year-on-year, and excluding restructuring expenses of 55 million yuan. As a result, Zotye Auto's quarterly profit for the 2nd quarter reached 250 million yuan, +25% year-on-year, while sales volume was -30%. Net profit for bicycles increased from 2,676 yuan to 5,307 yuan this year. Considering that sales volume in the first half of the year exceeded 100,000 vehicles, we expect Zotye Auto's net profit to exceed 500 million yuan in the first half of the year, and super market expectations. Automatic transmission supply bottlenecks have been removed. For models in the price range of 100,000 to 150,000 yuan, automatic transmission configurations are the main sales. Due to limited automatic transmission production capacity bottlenecks in the early stages, the company was unable to deliver orders for high-end models on time. Considering that SAIC Transmission completed production capacity expansion in March and that Dongan Mitsubishi 6AT has begun batch support, the automatic transmission supply problem has been eliminated, laying the foundation for a subsequent increase in sales volume. The model structure has been upgraded, and sales will hit bottom and rebound. The company currently has a complete product lineup and a reasonable structure. The T600, SR7 and Damai X5 focus on the SUV market in the 80,000 to 120,000 yuan range, the T700, SR9, and Damai X7 focus on the SUV market, and the Cloud 100S, E200, and E30 focus on the electric vehicle market. The company's models are stylish in appearance, rich in configuration, and outstanding cost performance, fully exploiting the car purchase demand in 3-5 tier cities. With the arrival of the peak automobile sales season, the company's sales volume will improve month by month, and we expect sales volume of 340,000 vehicles throughout the year. Zotye is rich in new energy products, has obvious channel advantages, and third- and fourth-tier cities lead the sales volume. The price of micro/small pure electric passenger cars is as low as 50,000 to 70,000 yuan (after the subsidy), and the purchase threshold has been significantly lowered. At the same time, the cost of using a vehicle has been drastically reduced. We believe that it will replace low-speed electric vehicles and electric tricycles, and the space is vast. Zotye is rich in electric models, and the third to fifth tier cities have channels and market advantages. The cumulative sales volume in the first six months of 2017 was about 13,000 units, with the highest market share for compact cars. Profit forecasts and investment advice. Zotye completed the product structure upgrade and ushered in a period of rapid development. Electric vehicles continued to be popular, with sales volume estimated at 340,000 and 480,000 units in 17/18. EPS in 17-19 is expected to be 0.91 yuan/1.29 yuan/1.53 yuan respectively, giving dynamic PE in 2017 20 times the average, target price 18.2 yuan, and a “buy” rating. Risk warning: 1. Systemic risk; 2. New car sales are lower than expected.