Event: the company released its semi-annual report for 2017, with operating income of 574.3125 million yuan up 25.3% over the same period last year, and operating profit of 97.8488 million yuan, an increase of 585.27% over the same period last year. The net profit belonging to shareholders of listed companies was 101.7965 million yuan, an increase of 1748.59% over the same period last year. The company's net profit for the current period turned from a loss to a profit compared with the same period last year.

The most typical example of LED warming up is getting back on track. Since the LED industry warmed up in the second half of 2016, the company's performance has come out of an upward arc and made profits for four consecutive quarters. The net profit in the first half of 2017 is close to the full-year profit of 2012 and 2013 before the decline in performance, and it is a high probability that the annual profit of 2017 will reach the best record in the history of the company. The good profit situation also shows that the LED chip industry is in short supply.

Gross profit margin continues to rise and economies of scale appear. 2017H1, the company's chip and epitaxial wafer business revenue increased by 81.00%, the corresponding operating costs increased by only 37.24%, and the gross profit margin increased by 20.33%.

The main reason is the decline in the cost of raw materials and the improvement of economies of scale, resulting in a decline in unit cost. Q2's gross profit margin reached 38.46%, an increase of 7.23 percentage points from the previous month.

Continue to expand production and strive to be a new pole of chip power. The company is the main supplier of red and yellow chips in China (MOCVD20 cavity). After several years of efforts, blue and green chips have also become an important supplier in the industry (MOCVD50 cavity). In order to comply with the growth of the industry, the company gradually and orderly expand production, and strive to become an important pole in the pattern of LED chip industry.

Profit forecast and investment rating. It is estimated that the company's revenue from 2017 to 2019 is 14.51max 19.21 / 2.659 billion yuan, net profit is 2.14max 3.01 / 371 million yuan, EPS is 0.28pm 0.39max 0.49, corresponding to PE is 33-23-19, respectively, and is given a "buy" rating.

Risk hint: the downstream demand of LED is not as expected.