This report is read as follows:

The net profit of MediaTek 17H1 fell by 4.48%, which was due to the sharp decline in gross profit margin over the same period last year and the increase in exchange losses. It is expected that the listing of new cotton in the second half of the year will boost cotton prices, protect the company's foreign exchange and continue the high dividend yield to enhance confidence and increase holdings.

Main points of investment:

Maintain the "overweight" rating and maintain the target price of 19.38 yuan. 17H1 revenue and return net profit were 1.969 billion yuan, with an increase of 5.47% and-4.48% respectively. The revenue of 17Q2 was 1.081 billion yuan (+ 8.77%), and the net profit of Q2 was 80.8 million yuan (- 9.28%). The results are in line with our expectations, and the decline in net profit is due to a sharp increase in the cost of raw materials such as cotton, a decrease in gross profit margin driven by higher energy prices such as coal, and an increase in exchange losses. Maintain the 2017-19 EPS forecast of 1.27, 1.32, 1.43 yuan, maintain the target price of 19.38 yuan, maintain the "overweight" rating.

A slight decline in yarn-dyed income, a decline in gross profit margin and an increase in exchange losses are a drag on performance. Overall, the company's 17H1 gross profit margin was 18.21%, a decrease of 1.89% compared with the same period in 16 years, directly leading to a decrease in net profit. In terms of products, the gross profit margin of clothing (shirts) decreased the most, followed by yarn-dyed fabrics and printed and dyed fabrics. This is related to a sharp increase in the cost of raw materials such as cotton and energy costs such as coal compared with the first half of 16 years, as well as a 6.47 per cent year-on-year decline in revenue from the largest share of dyed fabric products. From the cost point of view, the expense rate decreased slightly during the period, but the financial expense rate increased significantly by 0.63%, of which the exchange loss increased by 13.19 million yuan compared with the same period of 16 years. In terms of asset quality, inventory turnover is 0.66 times lower than that of 16H1.

In the second half of the year, with the listing of New Cotton and the company's investment in financial derivatives for foreign exchange hedging, the performance is expected to gradually improve. From the perspective of the industrial environment, the listing of new cotton in October 17 is expected to boost the market boom and improve the current disadvantage of cotton spinning enterprises at the price end and gross profit margin side. In addition, MediaTek actively hedges the value of financial derivatives, so that the risk of RMB exchange rate fluctuations can be controlled. The company has improved in internal management, product research and development and market development, which will also have a positive impact on performance.

Risk hint: the risk of product order volume and order price decline; the risk of large exchange rate fluctuations.