Incident: The company announced a preliminary increase in the semi-annual report. It is expected to achieve net profit from mother of 336.4876 million yuan to 385.7297 million yuan in the half year of 2019, an increase of 105% to 135% over the previous year, and net profit after deducting 216.66 million yuan to 25.4900 million yuan, an increase of 70% to 100% over the previous year. Due to the increase in income from changes in fair value of shares held in Great Wall Securities, it is estimated that net profit attributable to shareholders of listed companies will be affected by RMB 97.97 million in the current period. Increased profitability of the main business. We have observed that the company's gross margin has reached a high platform since 2018Q4, and is expected to be maintained in 2019Q2, which is particularly difficult in a poor environment. Our judgment comes from three points: 1. The share of the company's own brands has increased (currently accounting for nearly 30% of revenue), and the gross margin has increased compared to the OEM business (the company's gross margin is less than 30%, compared to OPP's gross margin of 35%); 2. Raw material costs have declined; 3. The first half of last year suffered exchange losses, and the exchange rate was basically stable this year. The transformation continues, with initial results. The company has experienced four major transformations in recent years: technology route transformation (energy-saving lamp → LED, LED accounts for more than 90%), product transformation (light source → lamp), management transformation (business group → control group), and business model transformation (OEM → independent brand). The biggest result of the transformation was a change in the business model, shifting from 2B to 2C, and at the same time bringing improvements in gross margin, which is already beginning to bear fruit. Trade frictions have eased, and downstream demand is expected to recover smoothly. LED is an industry that has been greatly affected by trade frictions between China and the US. As a result, downstream workers have adopted conservative and cautious business strategies over the past year, and industry prosperity has continued to be sluggish. The current positive change in the negotiation attitude between the two sides is expected to positively stimulate industry demand. The company's export business accounts for about 80%, and the expected benefits are quite obvious. Profit forecasting and valuation. Taking into account the income from changes in the fair value of financial assets held by the company, we raised our profit forecast. We expect the company's revenue from 2019 to 2021 to be $56.82/64.10/7.303 billion yuan, and net profit to mother of 627/634/736 million yuan. Maintain a “buy” rating. Risk warning. LED downstream demand weakens; industry competition intensifies.