Incident: The company released its 2018 semi-annual report, achieving revenue of 1.18 billion yuan (+58.64%); net profit attributable to mother of 37.08 million yuan (-8.98% YoY), deducting net profit of 30.33 million yuan (-47.75% YoY). The key investment point “materials+equipment” continues to drive revenue growth. The low gross margin of cathode materials puts pressure on the profit side. 2018H1's revenue increased 58.64% year-on-year, mainly benefiting from the sharp increase in the company's lithium battery cathode materials business. By business, lithium battery cathode materials achieved revenue of 850 million yuan, accounting for 71.5% of total revenue, up 93.58% year on year; lithium battery equipment achieved revenue of 250 million yuan, accounting for 21.2% of total revenue, down 4.83% year on year; and rare earth light-emitting materials achieved revenue of 50.39 million, up 26.81% year on year. The net profit of 2018H1 decreased by 38.98% year on year, mainly due to large fluctuations in the price of raw materials for cathode materials and a decrease in investment income in the current period. Profitability declined, and financial expenses increased sharply during the period. The company's comprehensive gross profit margin for 2018H1 was 14.7%, -4.8pct year on year. By business, the gross margins of lithium battery cathode materials, lithium battery equipment, and rare earth light-emitting materials were 7.71%/30.13%/12.83%, respectively, -6.09/+0.51/+4.89pct. The total cost ratio for the period was 10.2% (sales/management/finance expense ratios were 1.37%/6.85%/2%, and -1.05/-1.15/+1.49pct, respectively), and -0.73 pct year over year, mainly due to a sharp increase in interest expenses due to the increase in current bank loans, which increased the financial expense ratio by 1.49 pct. The subsidiary Haoneng Technology has performed well. Haoneng Technology, a leading domestic lithium battery manufacturer, is a domestic lithium battery equipment company. The core product is a high-precision coating machine, the core equipment of advanced processes. It has high-end customers such as CATL, Samsung, BYD, and China Aviation Lithium Battery. Recently, it won the CATL bid for 360 million lithium battery equipment. Currently, orders have exceeded 1.3 billion yuan. With the increase in the penetration rate of new energy vehicles and the high-end trend in the battery industry, we expect the lithium battery equipment market space to exceed 40 billion in 2018-2020. Haoneng is expected to seize the opportunity and become the leader in front-end equipment. The plan to acquire Yuchen Automation and extend it to the middle and rear equipment field, Haoneng Technology recently released two new types of equipment: a new double-layer wide high-speed extrusion coating machine and a laser pole ear cutting machine, which means that Haoneng Technology's front-end lithium battery intelligent equipment has all been completed. On August 20, Keheng Co., Ltd. announced that it plans to acquire all shares of Yuchen Automation for 450 million yuan. Yuchen's products are mid-stage equipment for battery cell production. Currently, it mainly provides power battery companies with specialized assembly and testing automation equipment for lithium batteries, which can form a good synergy with Haoneng Technology's business and further enhance Keheng's competitiveness in the field of lithium battery equipment. Profit forecasting and investment rating companies' cathode materials and lithium battery equipment businesses go hand in hand and are arranged collaboratively. We expect EPS in 2018-2020 to be 0.70/0.97/1.25 yuan respectively, corresponding to the current PE price of 21/15/12X, and continue to maintain a “buy” rating. Risk warning: There is uncertainty about mergers and acquisitions; progress in expanding lithium battery production falls short of expectations; industry competition intensifies.