Core view: The company's main business revenue growth exceeded expectations, but the increase in gross margin fell short of expectations. In the first half of 2018, the company achieved main revenue of 14.507 billion yuan, a year-on-year increase of 27.7%, and the revenue growth exceeded expectations, mainly due to outstanding growth in the company's lead-acid battery business; net profit of 513 million yuan, up 16.9% year on year. The main reason for the slightly lower increase in net profit was the decline in the company's overall gross margin. The gross profit margin for the first half of the year was 11.8%, down 0.9 percentage points year on year. The lead-acid battery business revenue increased, and the leading position stabilized. The company's lead-acid battery business achieved revenue of 13.313 billion yuan in the first half of 2018, an increase of 31.7% over the previous year. Among them, the electric bicycle and tricycle battery business achieved revenue of 12.178 billion yuan, an increase of 31.8%, and the special purpose battery business revenue of 1,135 billion yuan, an increase of 30.2%. The outstanding growth of the main business guarantees the company's impressive performance and the company's leading position in the lead-acid battery industry. The company's recycled lead business is growing rapidly. The waste battery traceability management policy is a major advantage that in the first half of 2018, the company's recycled lead business achieved revenue of 745 million yuan, an increase of 36% over the previous year. The growth in the recycled lead business is conducive to mitigating the impact of fluctuations in lead prices on the company's production costs. Currently, the waste battery traceability management policy has been introduced, which is committed to rectifying the chaos of small illegal workshops squeezing formal recycling enterprises. This is a major benefit to the standardized operation of the lead-acid battery recycling industry. The performance of the lithium battery business fell short of expectations that the company's lithium battery business achieved revenue of 278 million yuan in 2018, down 39% from the previous year. The performance of the lithium battery business in the first half of the year fell short of expectations. In the future, as the company actively expands customers, capacity utilization is expected to increase, and the company's lithium battery business is expected to improve. The profit forecast and investment rating are based on the company's low gross margin and the high maturity of the lead-acid battery market. We forecast the company's fully diluted earnings per share in 2018-2020 to be RMB 1.251, RMB 1.465, and RMB 1.701, respectively. The corresponding PE is 4.7X, 4.0X and 3.4X respectively, maintaining the “buy” rating. Risk suggests risk of lead prices remaining high; risk of profit margins falling short of expectations; financial risk; risk of environmental policy uncertainty