Main points of investment:

2018H1's revenue rose 3.87% year-on-year. The company released its 2018 semi-annual report, with an operating income of 297 million yuan, an increase of 3.87% over the same period last year. The net profit was 49 million yuan, down 3.49% from the same period last year; the net profit from non-return was 47 million yuan, down 1.12% from the same period last year; the basic earnings per share was 0.23 yuan; and the cash flow generated by operating activities in the first half of the year was 39 million yuan, an increase of 75.03% over the same period last year.

The gross profit margin decreased slightly and the cost increased. The company realized operating income of 297 million yuan, an increase of 3.87% over the same period last year, including 145 million yuan in the first quarter, an increase of 9.48% over the same period last year, and 153 million yuan in the second quarter, down 0.93% from the same period last year. From January to June 2018, the comprehensive gross profit margin was 32.97%, down 2.14pct from the same period last year. The company's financial expenses have fallen sharply. The company's sales expenses were 18.5 million yuan, an increase of 17.25% over the same period last year, mainly due to an increase in transportation costs caused by an increase in revenue; the sales expense rate was 6.22%, an increase of 0.71pct over the same period last year. The management fee was 25.82 million yuan, an increase of 11.33% over the same period last year, mainly due to salary adjustment and the increase in internal control costs; the management expense rate was 8.68%, an increase of 0.58pct over the same period last year. Financial expenses-192000 yuan, down 114.21% from the same period last year, the sharp reduction in expenses is mainly due to the decrease in exchange gains and losses; the financial expense rate is-0.06%, down 0.54pct from the same period last year.

Deep ploughing air filter material industry, high-performance filter material put into production to boost performance growth. In August 2018, the high-performance filter material production line independently developed by the company was completed and put into production. This product is the special achievement of the key R & D project "Research and Application of key Technologies of PM2.5 Air filter" undertaken by the company in Zhejiang Province. The products can not only remove fine particles of PM2.5 and PM1.0 in the air, but also effectively inhibit and kill bacteria and other harmful microorganisms, and have broad application prospects in ventilation, air conditioning and purification engineering. The product has the characteristics of high filtration efficiency, low resistance and long life, and is expected to realize import substitution with the advantage of low cost; it is estimated that the annual operating income of the project will be 350 million yuan and the net profit after tax will be 77.86 million yuan. We believe that this product is expected to be widely used in families, hospitals, schools, shopping malls and other scenarios, the company is expected to take advantage of the existing customer resources, through high value-added products to further strengthen the ability to take orders, improve the gross profit margin level.

Profit forecast and valuation. It is estimated that the company's 18-and 19-year net profit will be 96 million yuan and 109 million yuan respectively, and the corresponding EPS will be 0.46 yuan and 0.52 yuan respectively. With reference to the valuation of comparable companies, and considering the consolidation of the company's order-taking capacity and gross profit margin by putting high-performance filter materials into production, the company will be given a rating of 26-28 times PE in 2018, corresponding to a reasonable value range of 11.96-12.88 yuan, with a rating of "better than the market".

Risk hint. (1) the macroeconomic downturn, the decline in air conditioning demand; (2) the aviation air filtration equipment industry market space and expansion speed is not as expected; (3) automobile, rail transit, aircraft and other business line expansion is not up to expectations; (4) raw material price fluctuations; (5) exchange rate fluctuations.