The company's 2019H1 performance is in line with expectations, and the powertrain business of new energy vehicles is growing strongly, and in the short term, due to the decline of subsidies and the fluctuation of raw material prices, profits are under pressure; the range of customers continues to expand, and the future short-term disturbance factors are eliminated, and profits are expected to be repaired after the expansion of supporting scale; the company's fuel cell business has steadily advanced the layout, high-power products have landed one after another, waiting for the release of performance after the landing of subsidies. We maintain the judgment that the company's EPS for 2019-2021 is 0.18 EPS 0.11 plus 0.13 yuan, corresponding to PE 22-36-31 times, considering short-term disturbance profit pressure, lowering the company's target price to 4.68 yuan, corresponding to 2019 PE27 times, maintaining the "overweight" rating.

The revenue of 2019H1 is 4.745 billion yuan (+ 12.13%), and the non-return net profit is 53 million yuan (- 41.12%). The company's 2019H1 revenue is 4.745 billion yuan (year-on-year + 12.13%, the same below), the parent net profit is 273 million yuan (+ 146.81%), and the non-parent net profit is 53 million yuan (- 41.12%). The non-recurrent profit and loss system recognizes the investment income of 216 million yuan from the transfer of the 50% shares held by Beijing Petra Motor Drive Technology Co., Ltd. (referred to as "PEPS"), a wholly-owned subsidiary. After the transfer, Beijing Petra will no longer hold shares in PEPS.

Gross margin 16.86% (- 0.79pcts), period expense rate 14.70% (+ 0.40pcts). The company's 2019H1 gross profit margin is 16.86% (- 0.79pcts). From products that account for more than 10% of revenue, air-conditioning motors / non-air-conditioning motors / new energy vehicle powertrain / starter and generator gross margins are 13.73%, 25.47%, 9.03%, 1.68% (- 0.25/+4.68/-7.64/-0.33pcts), respectively. The gross profit margin of the powertrain of new energy vehicles has fallen sharply, which is due to the rising prices of raw materials and the pressure of subsidies for new energy vehicles passing upstream under the trade friction between China and the United States. The rate of expenses for the period is 14.70% (+ 0.40pcts), of which the rate of sales / management / financial expenses is 3.18% 10.48% and 1.03% (- 0.61/+0.55/+0.46pcts). The increase in the rate of management expenses is due to the increase in the salary of managers, and the increase in the rate of financial expenses is due to the decrease in interest income and the increase in exchange losses in the current period.

The revenue of new energy vehicle powertrain increased strongly by 97.15%, and the range of customers was broadened. From a business point of view, the revenue of household electrical appliances motor / new energy vehicle powertrain / vehicle rotating electrical appliances / new energy vehicle business is 25.25 and 8.51 billion yuan (+ 0.05% plus 97.15% plus 1.68% and 7.93%). 2019H1 new energy vehicle sales increased by 49.6% compared with the same period last year. During the period, the company's new energy vehicle powertrain business swept away the weakness, benefiting from strong growth in the volume of major customer models such as BAIC, Great Wall, Chang'an and Chery. According to NE time data, 2019H1 and its subsidiary Shanghai Electric Drive have a total of 7.71 million sets of motor / electronic control installed, with a market share of 13%. During this period, the company has completed the planning of "three-in-one" electric drive products and obtained orders from India's Tata and Hyundai; "two-in-one" electric drive assembly products are also equipped with Great Wall and Renault; and completed the development and verification of SAIC general hybrid model 48VBSG and XPeng Inc. high power density drive motor. The company's powertrain customer range continues to expand, and is expected to fully enjoy the full growth dividend of the new energy vehicle industry in the future.

Steadily promote the layout of fuel cells, high-power products have landed one after another. Fuel cell business is an important link for the company to realize the layout of the complete industrial chain of "motor + electronic control + battery" of new energy vehicles. The company is the second largest shareholder of global fuel cell leader Ballard, with a stake of 9.9%. A technology transfer agreement was signed with Ballard in 2016 for Guohong Ballard to supply the FCvelocity-9SSL stack and Shanghai Electric to drive the 30/85kW FCvelocity-MD30/85 fuel cell engine, which will produce 600 sets in 2018. In terms of autonomy, the company completed the debugging of independent core components such as fuel cell controller, DC/DC, intercooler and water pump, and the performance verification of key components such as air compressor, hydrogen pump, humidifier and sensor, so as to provide comprehensive domestic storage for fuel cell in the future. The company successfully developed new 46kW products, and the models of Shunda bus were listed in the catalogue of the Ministry of Industry and Information Technology, and began to lay out high-power products such as 62/100kW to fully meet the minimum requirements of subsidies for power indicators.

Risk factors: sales of new energy vehicles fall short of expectations, raw material prices fluctuate more than expected, and fuel cell technology iterations fall short of expectations.

Investment advice: the company's 2019H1 performance is in line with expectations, new energy vehicle powertrain business strong growth, short-term due to subsidies slope and raw material price fluctuations profit pressure; customer range continues to expand, the future short-term disturbance factor elimination, supporting scale expansion profit is expected to repair; the company fuel cell business layout steadily, high-power products have landed, waiting for the subsidy to land after the release of performance. We maintain the company's judgment of 2019-2021 EPS 0.18, 0.11, 0.13 yuan, corresponding to PE 25-41-36 times, considering short-term disturbance profit pressure, downgrade the company's target price to 4.68 yuan, corresponding to 2019 PE 27 times, maintain the "overweight" rating.