Key elements of the report:

In the first half of 2015, the company's performance was in line with expectations. The growth of the trading industry against the trend promotes the growth of the company's performance, while the increase in the price of electrolyte leads to a decline in the performance of the chemical industry; the growth of the company's gross profit margin mainly benefits from the adjustment of the product structure of the trading industry, and its profitability is expected to improve for the whole year. The effect of the company's trade strategy adjustment appears, and it is expected to grow steadily in the second half of the year. The company's electrolyte has customer, scale and technical advantages, and will benefit from the growth of new energy vehicles and energy storage market in the medium and long term. It is predicted that the EPS of the company in 2015-16 is 0.74 yuan and 0.91 yuan respectively. According to the closing price of 26.22 yuan on May 29th, the corresponding PE is 35.58 times and 28.86 times respectively. The current valuation relative to the lithium plate level is reasonable, to maintain the "overweight" investment rating.

Events:

Jiangsu Cathay Pacific (002091) released the 2015 China report. In the first half of 2015, the company achieved operating income of 2.911 billion yuan, an increase of 4.58% over the same period last year, and operating profit of 165 million yuan, a substantial increase of 31.62% over the same period last year. The net profit attributed to shareholders of listed companies was 121 million yuan, an increase of 30.71% over the same period last year, of which the net profit belonging to shareholders of listed companies after deducting non-recurring profits and losses was 118 million yuan, an increase of 29.91% over the same period last year, and basic earnings per share was 0.33 yuan.

Comments:

The company's better-than-expected growth in the second quarter came from its trading business. In the first half of 2015, the company's revenue was 2.911 billion yuan, an increase of 4.58% over the same period last year, and the net profit was 121 million yuan, a sharp increase of 30.71% over the same period last year. The company's quarterly results show that revenue and net profit in the second quarter of 15 reached the highest level in the past 11 years. Revenue and net profit in the second quarter were 1.765 billion yuan and 80.48 million yuan respectively, up 54.01% and 100.65% respectively over the first quarter, and the second-quarter results slightly exceeded expectations. In the first half of 15 years, the company's net investment income was 4.77 million yuan, an increase of 476.44% over the same period last year, due to the increase in long-term equity investment income calculated by the equity method; the asset impairment loss was 4.06 million yuan, compared with-490000 yuan in the first half of 14 years, of which the loss of bad debts was 2.84 million yuan; non-operating income was 3.16 million yuan, down 52.49% from the same period last year, mainly due to the sharp decline in government subsidies. The growth of the company's performance in the first half of the year is mainly due to the reverse growth of the trading industry.

Trade performance bucked the trend for 15 years and was cautiously optimistic in the second half of the year. Affected by the global economic downturn, the overall situation of China's import and export trade is still not optimistic, and the growth rate of import and export has continued to decline since 13 years. In the first half of 15 years, China's exports totaled US $1.0719 trillion, a slight increase of 0.92% over the same period last year, while imports fell sharply by 15.70% to US $808.6 billion, the first decline since 2010. In recent years, the company's trade has grown against the trend, the growth rate has continuously exceeded the industry level, and has achieved good growth over the past 15 years. In the first half of 15 years, the revenue of the trade industry reached 2.574 billion yuan, an increase of 4.35 percent over the same period last year, accounting for 88.42 percent, of which export trade was 2 billion yuan, a sharp increase of 10.55 percent over the same period last year, and import trade was 666 million yuan, an increase of 1.67 percent. The main reason for the counter-trend growth of the company's trade is that the focus of the company's export trade has gradually changed to the clothing field in recent years, and the promotion of independent brands has been strengthened. Under the unfavorable export situation, the enterprises with brand and industry status are more competitive. For example, in the first half of 15 years, the company's textile and clothing exports ranked eighth among China's textile and clothing export enterprises, of which clothing exports were 280.78 million US dollars. Accounted for 67.0% of the company's exports, an increase of 25.1% over the same period last year. In view of the overall weak global economic growth, the EU-Greece crisis has not yet been completely eliminated, while China is in a critical period of economic structural transformation, economic growth is facing greater downward pressure, in order to maintain economic growth in a reasonable range, the state has introduced a series of measures to promote trade, and the company has a certain industry status in the field of textiles and clothing. At the same time, in recent years, the strategic adjustment of trade exports to the clothing field is gradually achieving results, and the company is cautiously optimistic about the import and export trade in the second half of 15 years.

The decline in the performance of the chemical industry caused by the increase in the price of electrolyte will benefit from the increment of new energy vehicles and energy storage market in the medium and long term. In the first half of 2015, the company's chemical industry revenue was 237 million yuan, down 2.44% from the same period last year, accounting for 8.14% of revenue, while gross profit accounted for 18.95%. The proportion of gross profit continued to decline and reached a new low in recent years. The company's chemical industry is dominated by Huarong Huarong's lithium-ion battery electrolyte. In the first half of the year, the company's lithium battery electrolyte sales increased by 10.32% compared with the same period last year, while Huarong Chemical's revenue was 230 million yuan, down 3.61% from the same period last year, and its net profit was 44.07 million yuan. The sharp drop of 19.66% over the same period last year shows that the price of electrolyte products has dropped sharply compared with the same period last year, mainly due to intensified competition in the industry. In the medium to long term, the key to the future increment of lithium batteries lies in the field of new energy vehicles and energy storage. For example, in 2014, the first year of the launch of new energy vehicles in China, the output in 14 years was 84000, a sharp increase of 376% compared with the same period last year. Affected by the continued positive policies, technological upgrading and the successive enrichment of new energy vehicle products, China's new energy vehicles continued to grow at a high rate in the first half of 15 years, with the output of 78600 vehicles in the first half of the year, a substantial increase of 300 percent over the same period last year, of which 51800 were pure electric vehicles. The number of new energy vehicles increased gradually from April to June in 15 years, reaching 25000 in June, and it is expected to double the high growth rate for the whole of 15 years. At the same time, the proportion of renewable energy in China's energy structure is significantly low. Combined with the transformation of economic structure and China's industrial advantages in the field of photovoltaic power generation, it is expected that China's renewable energy sources such as photovoltaic power generation and wind power will continue to grow. Taking photovoltaic power generation as an example, the target of photovoltaic installed capacity in China in 15 years is 17.6GW, which is much higher than that of 10.6GW in 14 years. The characteristics of renewable energy need to be docked with energy storage technology, at the same time, energy storage technology has great market potential in power grid peak regulation and other fields. In particular, Tesla, Inc. launched a series of energy storage batteries in May 15, which has been recognized by the market and is expected to blow up energy storage heat all over the world. Overall, the future increment of lithium battery lies in the field of new energy vehicles and energy storage. According to SNE, the share of new energy vehicles / energy storage in the lithium battery market has increased significantly in recent years, from 7.91% in 11 years to 20.98% in 14 years, and is expected to reach 33.89% in 16 years. The company is the forerunner and leader of China's lithium battery electrolyte industry, with the advantages of customers, technology and scale, and will significantly benefit from the outbreak of new energy vehicles and energy storage market in the medium and long term.

The gross profit margin of the trade sector has increased significantly and is expected to increase overall in 15 years. In the first half of 2015, the company's sales gross margin was 14.96%, up 2.68 percentage points from 12.29% in the first half of 14, while the single-quarter gross profit margin has continued to rise since the third quarter of 14, to 14.89% in the second quarter of 15. Specific to sub-industry gross profit margin: import and export gross profit margin was 12.79%, a sharp increase of 3.58% over the same period last year, due to the adjustment of product structure and the increase in the proportion of clothing exports with higher added value, such as export gross profit margin of 15.81%, a significant increase of 4.22% over the same period last year; the chemical industry was 34.50%, down 4.15% from the same period last year, mainly due to the decline in product prices caused by intensified competition in the industry. The company has a significant advantage in the field of trade, with the further adjustment of the product structure, the gross profit margin of the trade industry is expected to increase slightly steadily, while the company has a significant position in the electrolyte industry, and the gross profit margin is expected to remain at a high level. Overall, it is expected that the company's 15-year gross profit margin will increase compared with the same period last year.

The sharp increase in sales costs is expected to increase slightly over the 15-year period. In the first half of 15 years, the total expenditure of the company's three fees was 267 million yuan, a sharp increase of 27.87% over the same period last year, and the corresponding rate of three expenses was 9.18%, an increase of 1.61% over the same period last year, mainly due to a substantial increase in sales expenses. Specific to itemized expenses: the expenditure on sales expenses was 183 million yuan, a sharp increase of 44.93% over the same period last year, of which the expenditure on wages and wages was 67.05 million yuan, compared with 20.81 million yuan in the first half of 14 years, a sharp increase of 222.28% over the same period last year; management expenses were 81.72 million yuan, an increase of 9.58% over the same period last year, of which wage and wage expenses were 49.98 million yuan; financial expenses were 2.41 million yuan, down 75.15% from the same period last year, mainly due to an increase in exchange earnings. We believe that the company's overall operating capacity is robust, and with the increase in sales staff, the overall three-item expense rate is expected to increase slightly in 15 years.

Maintain the company's "overweight" investment rating. It is predicted that the EPS of the company after full dilution in 2015 and 2016 will be 0.74 yuan and 0.91 yuan respectively. At present, the company is suspended because of major asset restructuring. According to the closing price of 26.22 yuan on May 29th, the corresponding PE is 35.58 times and 28.86 times respectively. The current valuation relative to the lithium plate level is reasonable, to maintain the "overweight" investment rating.

Risk tips: the global economic downturn is higher than expected; the progress of new energy vehicles is lower than expected; exchange rate fluctuations; and increased competition in the industry.