Key investment points: The new energy policy dragged down the performance in the first half of the year, and the delivery of major contracts increased the annual performance. On August 8, the company's semi-annual report revealed that due to state subsidies and entry policies for the first half of the year, sales of the company's new energy vehicles, especially new energy commercial vehicles, declined, which dragged down its performance in the first half of the year. The company's revenue for the first half of the year was 1.02 billion yuan, down 22.77% year on year, and net profit was about 62.59 million yuan, down 43.35% year on year. In the first half of the year, Kowloon Motor Company and Yichun Bus Company have completed more than 30 model applications, subsidy announcements and duty-free catalogue applications. The company issued separate announcements on June 22 and May 4, 2017, disclosing procurement contracts with Shenzhen National Transportation and Zhuhai Guangtong Automobile, worth 1,349 million yuan and 2,655 billion yuan, which ended December 31, 2018. As new energy vehicles enter the peak production and sales season in the second half of the year, contracts are gradually delivered, subsidies for energy-saving motors and new energy vehicles are put in place, and lithium carbonate production is gradually released, the company expects net profit of 2.07-259 million yuan from January to September, an increase of 20-50% over the previous year. Seize upstream mica resources and enjoy the dividends of mica price increases. The company has rich lithium ore resource reserves, with 5 mining rights and 8 prospecting rights. The company currently focuses on developing the Shiziling lithium porcelain mine in Yifeng County and the Xinfang tantalum-niobium mine. The design capacity of the Yifeng County Shiziling lithium porcelain mine is 1.2 million tons of lithium porcelain ore mine. Construction will be completed by the end of 2017, and production will be expanded according to market demand. The Xinfang tantalum-niobium mine produces about 400,000 tons per year, and the mine is currently the main source of lithium carbonate raw materials for the company's lithium carbonate preparation. We believe that as mica lithium extraction technology becomes more mature, the price of mica continues to rise, the company's raw materials are guaranteed, and it can enjoy greater price flexibility. The development of mica+ore lithium extraction is pending the release of lithium carbonate. The company has built a production line with an annual output of 3,000 tons of lithium carbonate. It is estimated that the annual production capacity will reach 5000-6000 tons after the technical reform is completed in August, while the cost will also be drastically reduced. The company plans to raise no more than 1,839 million yuan of non-public shares to raise no more than 1,839 million yuan for projects such as the annual production of 10,000 tons of lithium carbonate from lepidolite and comprehensive utilization of rubidium cesium by-products (839 million yuan). Construction of the project is expected to begin in August this year, with a total construction period of 2 years. The company also plans to establish Baojiang Lithium with 50% of each investment with Hong Kong Baowei Materials, and add a new spodumene concentrate project with an annual output of 10,000 tons of lithium carbonate and 5,000 tons of lithium hydroxide. Baowei Materials has a total of 160,000 to 200,000 tons of lithium pyroxene concentrate resources in Western Australia and Canada. The planned construction cycle of the project is about 10 months. After completion, the total production capacity of lithium products will reach 30,000 tons/year, and the equity production capacity will reach 22,500 tons/year. Maintain a “buy” rating. The company owns the entire mica lithium extraction industry chain, holds upstream lepidolite resources, and enjoys the dividends of mica price increases. With the completion of technical improvements, the annual production capacity of lithium carbonate will increase to 5,000 tons in 2017. Costs will drop rapidly, and profits will increase dramatically. The company also has two major business platforms, Jiulong Automobile and MiG Electric. Assuming that the fixed increase is completed in 2018 and the fixed increase project performance is released as scheduled, the final lithium carbonate equity production capacity will increase to 22,500 tons/year, enjoying the dividends of the NEV industry. Assuming that the total share capital increases to 1,762 million shares after the increase is completed, we expect the 2017-2019 EPS after additional dilution to be 0.30, 0.42, and 0.60 yuan/share, respectively. Considering the rising demand in the new energy industry to which the company belongs, a 50-fold valuation was given in 2017, corresponding to the target price of 15.00 yuan, maintaining the “buy” rating. Uncertainty analysis. The risk of project construction falling short of expectations and market demand falling short of expectations.