Events:

According to the 2019 semi-annual report of Shenzhen Xinxing, the operating income in the first half of the year was 522 million yuan, up 7.11 percent over the same period last year; the net profit was 57.8543 million yuan, up 7.30 percent over the same period last year; and the net profit excluding non-recurring profits and losses was 52.2995 million yuan, up 28.04 percent over the same period last year. The comprehensive gross profit margin was 22.68 percent, an increase of 2.79 percent over the same period last year, in line with expectations.

Main points of investment:

Adjust the production layout, gradually transform to high-end aluminum-based master alloy, help the future profit margin and market share continue to increase: the company is planning to transfer 30,000 tons / year aluminum grain refiner production line from Shenzhen plant to Luoyang plant. At that time, Shenzhen plant will retain only 30,000 tons / year production capacity of aluminum grain refiner, and then gradually transform to other high-end alloys, mainly to provide all kinds of alloy products for aluminum processing enterprises in South China and other surrounding areas and special high-end alloy customers at home and abroad. The Luoyang plant will build an aluminum grain refiner production capacity of 60,000 tons per year, which will mainly provide aluminum grain refiner products for aluminum processing enterprises in East China, Central China, North China and other surrounding areas. The implementation of this strategy will greatly reduce the company's operating costs and improve the profit margin and market share of the company's alloy products.

The unique advantages of raw materials have laid a solid foundation for the layout of the company's whole industry chain and effectively guaranteed the profit margin of the company's main products: fluorine material package is the main raw material of aluminum grain refiner. Hydrofluoric acid and fluorite are the main raw materials for the manufacture of fluorine salts, which account for the total production cost of fluorine salts, and their price fluctuations have a great impact on the gross profit of the company's end products. The company chose to increase its capital and hold 30% of its equity. Huikai Chemical mainly deals in hydrofluoric acid products. At present, it has formed an annual production capacity of 20,000 tons of anhydrous hydrogen fluoride. After the completion of the expansion of the project, the production capacity will reach 50,000 tons per year. As a result, the production cost is effectively reduced and the gross profit margin of the end product is increased. In view of the non-renewable characteristics of fluorite resources and strong scarcity, Ruijin Mianjiang Fluorite Company is a wholly owned subsidiary of Ruijin Mianjiang Fluorite Co., Ltd. Fluorite is now capable of mining 600000 tons. The enterprises in the industry rely on the upstream fluorite mineral resources to a certain extent; the company makes use of its own advantages to expand vertically upstream, which lays a solid foundation for the layout of the whole industrial chain and effectively ensures the profit margin of the company's main products.

Profit forecast and investment advice: we expect the company's return net profit in 1919-21 to be:

1.44,1.71 and 194 million, the EPS were 0.90,1.07,1.21 yuan respectively, and the PE corresponding to the closing price of 36.28yuan were 40.21,22.96,29.91 times respectively, maintaining the "overweight" rating.

Risk factors: lower-than-expected demand, lower-than-expected progress of new projects, fluctuations in aluminum raw material prices.