This report is read as follows:

Commutator industry leader, the main business operation is sound, industrial chain integration is expected to open the growth space.

Main points of investment:

Maintain the overweight rating. In 2017, H1 achieved revenue of 658 million yuan, an increase of 34% over the same period last year, and a net profit of 75 million yuan, an increase of 41% over the same period last year, slightly exceeding our expectations. Considering that the company relies on the advantage of major customers to continue to cash profits and integrate with the future industrial chain, it maintains eps0.54/0.80/1.40 yuan in 2017-19, maintains the target price of 27.54 yuan, and increases its rating.

Commutator industry leader, the main business is sound. ① R & D investment and gross profit margin increased significantly.

In the first half of 2017, the company's R & D investment increased by 60.38% compared with the same period last year, increased investment in new components and new products for motors, electric controls and batteries of new energy vehicles, and continued to promote fine cost control. The company's gross profit margin reached 29.37%, an increase of nearly 2 percentage points over the same period last year. ② Kaizhong Precision occupies 12% of the global share, with Bosch Group, Dechang Motor and other customers, overseas well-known motor enterprises supplier certification cycle of 2-3 years, high barriers. With the scale of 10 billion yuan in the global commutator market, except for Kolektor (15% share) and Kaizhong Precision, the share is less than 4%. In the past five years, the company ranks first in China in terms of production and sales. ③ 's 2017 semi-annual report predicts a net profit range of 1.06-124 million yuan from January to September 2017, a year-on-year growth rate of 20%.

The integration of the leading industrial chain is expected to open up the growth space. ① commutator belongs to the niche market with brush micro-special motor. Drawing lessons from the experience of leading Kolektor, the integration of industry chain is a shortcut for commutator enterprises to break through the ceiling of the industry. ② acquired the German high-strength elastic parts business with 4.3 million euros in April of 16 years. High-elastic parts contributed 9120 million revenue in the first half of 2016 (2016 revenue of 114 million yuan), a significant increase over the same period last year. The industry leader has a strong ability to integrate, and vertical integration is expected to open up the growth space.

Risk hint: the industrial chain integration is lower than the expected risk.