The company recently released its 2018 semi-annual report. In the first half of 2018, the company achieved revenue of 3.536 billion yuan, an increase of 14.42% over the same period last year; comprehensive gross profit of 44.21%, down 0.36 pct from the same period last year; and net profit of 1.14 billion yuan, an increase of 330.72% over the same period last year, deducting 129 million yuan of non-return net profit, down 43.85% from the same period last year. In a single quarter, the company's revenue in the second quarter of 2018 was 1.96 billion yuan, up 1.94% from the same period last year; the comprehensive gross profit margin was 42.40%, down 1.78pct from the same period last year, down 4.06 pct from the previous year; and the net profit from home was 1.059 billion yuan, deducting 106 million yuan from non-home net profit, down 46.26% from the same period last year.

The sharp increase in the company's net profit is mainly due to the investment income of 1.053 billion yuan generated by the disposal of 75% equity in Changyuan Electronics and the recognition of investment income from the sale of some available-for-sale financial assets, deducting the decline in non-profits. it is mainly due to: (1) the increase in the balance of interest-bearing liabilities and the increase in borrowing rates lead to an increase of 109 million yuan in interest expenditure compared with the same period last year; (2) the lack of orders in Hunan Zhongli in the first half of the year has a great impact on the performance. (3) the business of Changyuan and Eagle Intelligent Factory, a holding subsidiary, has declined, resulting in a significant decline in operating performance.

Intelligent factory equipment: the downstream expansion of Yataili is smooth, and the revenue has increased by about 43%. In the first half of 2018, Yataili achieved revenue of 672 million yuan, an increase of 42.88% over the same period last year, and a net profit of 90.54 million yuan, an increase of 4.13% over the same period last year. Following the successful research and development of chip automated test equipment for high-end customers last year, Yentaili continues to undertake the research and development of the next generation of product equipment, successfully delivered and passed a number of tests by high-end customers, and its strength in the chip semiconductor industry has risen rapidly; in addition, Wentaili has developed rapidly in the field of testing and assembly of key components of new energy vehicles, and has laid out intelligent factory design solutions and supporting software, hardware products and other areas. We believe that the low profit growth rate is mainly due to the company's rapid growth in R & D investment and other expenses in the process of expanding from customized equipment to standardized equipment and to the new downstream.

The income of Changyuan and Eagle in the first half of 2018 was 249 million yuan, down 55.34% from the same period last year, and the net profit was 17 million yuan, down 79.20% from the same period last year. Due to the continuous influence of some large domestic clothing manufacturing enterprises by the national policy of "three go, one drop and one subsidy" and the dual effect of the tightening of funds at the national macro level, the income of intelligent factories has dropped sharply. with the gradual easing of the financial pressure of domestic clothing enterprises and management adjustment, we expect the follow-up performance of Changyuan and Eagle to pick up gradually.

Smart grid equipment: steady growth in revenue and profits. In the first half of 2018, Changyuan Shenrui achieved an income of 1.284 billion yuan, an increase of 20.01% over the same period last year, and a net profit of 127 million yuan, an increase of 22.19% over the same period last year. Changyuan has a total income of 146 million yuan and a net profit of 32.49 million yuan. The company ranks firmly in the forefront of the industry in the national network recruitment and southern network framework bidding, and actively develops new products and new markets, we expect to maintain stable growth in the future.

Electric vehicles and other functional materials business: in the first half of 2018, Hunan Zhongli achieved an income of 73.64 million yuan and a net profit of-37.35 million yuan. Due to the influence of Waltma and the expected adjustment of national new energy policy, there was a shortage of orders in the first half of the year, but the company is also actively expanding new customers. It has opened up customers such as Ningde Times, BYD, Cade, Guoxuan, Lishen, Guangyu and ATL, and successfully developed 7 μ m and 5 μ m products. We expect orders to pick up in the second half of the year.

Changyuan Huasheng realized revenue of 161 million yuan, an increase of 12.37% over the same period last year, and net profit of 25.19 million yuan, down 19.52% from the same period last year. This is mainly due to the greater cost pressure on downstream customers in the context of subsidy retrograde, resulting in greater price pressure on Changyuan Huasheng products. Taixing plant with an annual output of 5800 tons of electrolyte additives has been successfully put into production, and has made significant improvements in solvent recovery and solid waste treatment, and its competitiveness has been further enhanced.

The income of Wei'an of Changyuan Park reached 251 million yuan, an increase of 41.33% over the same period last year, and the net profit was 30.63 million yuan, an increase of 15.10% over the same period last year. Type-C charging line protection built-in PTC products are waiting for mass production; new energy vehicle battery protection module BMS has cooperated with a number of customers; in the field of network communication security, a number of products have entered Foxconn, Amazon and Haikangwei and other enterprises.

Profit forecast and investment advice. Considering the transfer of Changyuan electronic equity, the amount of non-recurrent profit and loss of the company in 2018 is relatively large. We estimate that the net profit of the company vested in the parent company is 1.599 billion yuan in 2018 and 863 million yuan and 1.038 billion yuan in 2019-2020, corresponding to 1.21,0.65 and 0.78 yuan per share in 2018-2020.

In 2019, we expect the company to return to its mother with a net profit of 863 million yuan. Among them, the investment income is 250 million yuan. Considering the remaining 25% equity of Changyuan Electronics, we expect the investment income of the company's joint ventures and joint ventures to be about 70 million yuan in 2019, and the investment income corresponding to the sale of available-for-sale financial assets is 180 million yuan (corresponding to 162 million yuan after tax). Based on the principle of prudence, after deducting this part of the investment income, with reference to the valuation level of the same industry, the company was given a "better than the market" rating of PE 18-22X in 2019, with a reasonable value range of 9.52-11.64 yuan.

Risk hint. The growth rate of demand for smart factory equipment slows down; the growth rate of lithium materials is lower than expected, and non-recurring gains and losses affect profit forecasts.