Events:

In the first half of 2018, the company achieved revenue of 1.669 billion yuan, an increase of 63.49% over the same period last year, and a net profit of 305 million yuan, an increase of 391.57% over the same period last year. The net profit of non-return was 199 million yuan, an increase of 209.07% over the same period last year. In the second quarter, the company achieved revenue of 898 million yuan, an increase of 34.5% over the same period last year, and a net profit of 107 million yuan, an increase of 541.53% over the same period last year. The net profit after deducting non-return was 94 million yuan, up 293.56% from the same period last year.

Comments: the company's net profit increased significantly in the current period, mainly due to the significant increase in production and sales of the lithium industry during the reporting period, the strong demand of the traditional mechanical and electrical industry, and the year-on-year growth rate of new energy vehicles. (1) with the completion of the secondary technical transformation, the company's production capacity of 5000 tons of mica to prepare lithium carbonate has basically reached full production. The revenue of lithium carbonate business in the first half of the year was 377 million yuan, an increase of 694.31% over the same period last year. (2) with the recovery of the iron and steel construction industry, the demand for traditional motors such as crane metallurgical motors is strong, and the products are in short supply. The income of traditional motor business in the first half of the year was 398 million yuan, an increase of 109.77% over the same period last year. Affected by the growth of the downstream market, the revenue of motor business of new energy vehicles was 69 million yuan, an increase of 76.64% over the same period last year. (3) benefiting from the setting of the buffer period of the subsidy policy, the sales of Yichun bus factory and Kowloon Motor New Energy bus increased significantly compared with the same period last year, and the revenue of new energy vehicle business in the first half of the year was 220 million yuan, an increase of 99.66% over the same period last year.

When the mine is put into production, the release of production capacity is guaranteed.

(1) with the successful commissioning of the first phase of 600000 tons of lithium porcelain stone project in Yifeng mining area, the company currently has a total mineral processing capacity of 1.2 million tons, and the self-sufficiency rate has been further improved. (2) Baldshan of Tawana, an Australian listed company in which the company owns shares, has produced high-quality concentrates. At present, the monthly output is stable at about 10,000 tons, and some of the concentrates have been shipped to China, providing a raw material guarantee for the company's spodumene concentrate processing and production of lithium salt. The sufficient supply of raw materials in the upstream ensures the orderly release of lithium salt production line in the middle reaches.

Focus in the second half of the year: lithium salt put into production + new energy vehicle volume

(1) the lithium salt production capacity of subsidiary Baojiang Lithium Industry is under orderly construction, and it is expected to reach the production standard as soon as possible in the second half of the year. After putting into production, the subsidiary spodumene can produce lithium salt with a capacity of 15000 tons (equity capacity of 7500 tons, including 5000 tons of lithium carbonate and 2500 tons of lithium hydroxide). (2) after the declaration of new energy vehicles is completed, the second half of the year will focus on EM3, EM5 and other major models to promote sales in the mainland, Hong Kong, South Korea, Southeast Asia and other markets.

Profit forecast

The company expects the net profit from January to September 2018 to be 316-421 million yuan, an increase of 50% 100% compared with the same period last year. We maintain the previous judgment and maintain the company's profit forecast. From 2018 to 2020, the EPS per share is 0.57,0.65 and 0.83 yuan respectively, giving the company a valuation of 20 times PE in 2018, corresponding to the target price of 11.40 yuan, and maintaining the "buy" rating.

Risk hint: lithium price remains low and the project production does not meet expectations.