Key investment events: The company released a semi-annual report, achieving revenue of 1,057 million yuan, an increase of 5.11%; net profit of 134 million yuan, a year-on-year increase of 2.13%; non-net profit of 101 million yuan, a year-on-year decrease of 13.11%; of these, Q2 quarterly revenue of 532 million yuan, a year-on-year decrease of 7.9%; net profit of 75 million yuan, a year-on-year decrease of 5.82%; and non-net profit of 57 million yuan, a year-on-year decrease of 25.69%. Demand is weak, revenue growth is slowing, and a two-pronged approach on the cost side promotes improvement in gross margin: Q2, weak demand for lighting, consumer electronics, etc., caused the month-on-month increase in revenue in a single quarter, but the company continued to optimize on the cost side. With little increase in utilization rates, gross margin rebounded 3.98 pct month-on-month, with excellent performance. We expect, on the one hand, prices of upstream electrode foils and other materials have loosened. More importantly, the self-sufficiency rate of electrode foils continues to increase. This can be confirmed by the balance sheet. Huacheng Huacheng, the main implementation entity of Xinjiang, Rongze, etc. There was a significant increase in assets. However, net profit declined after deduction mainly due to a large increase in financial expenses and R&D expenses compared to the same period last year. Looking ahead, the lighting market is expected to stabilize. Consumer electronics will benefit from a wave of switching and a continuous increase in fast charging power. Growth is expected to resume. At the same time, breakthroughs in high-end fields such as power supplies continue, and profit growth is expected to resume. High-end products such as MLPC have made steady breakthroughs, and support from downstream customers has driven long-term growth: aluminum electrolytic capacitors are basic components. Currently, the high-end market is still dominated by Japanese companies. Against the backdrop of emphasis on autonomy and control and the rise of downstream terminals, demand for domestic substitution is strong. Meanwhile, the company's high-end products such as solid-state capacitors (revenue increased by nearly 30% in 2018) and MLPC have been mass-produced in batches, and a breakthrough trend in the middle and high-end markets is already there, and it is expected that they will gradually replace Japanese in the future. Comparatively speaking, although Japanese manufacturers account for more than 50% of the market, their main factories are in the mainland, and the cost side disadvantage is obvious. Profit pressure has been prominent in recent years, gradually shrinking to high-end fields such as communications, industry, and automobiles in order to stabilize profitability, and industry transfer to domestic leaders has brought a lot of room for growth. The company's phase II project is expected to contribute growth in 20 years, and it is worth looking forward to further penetration in the fields of communications and industry in the future. Build a new intelligent chemical plant and continue to strengthen core competitiveness. The company has equipment factories. The new production capacity of the five plants is built according to the latest automation standards. Based on an annualized production capacity of 200 million units, the full production capacity is less than 300 people. The corresponding per capita output has more than doubled compared to now. The new early-stage convertible fund-raising plant is designed according to this standard. After production is put into operation at the end of 19, labor costs are expected to decrease at the same time as revenue increases, and the profitability center is expected to rise. Investment suggestions: Profitability recovery, demand recovery with the arrival of peak season, is expected to drive profit growth upward, and at the same time accelerate import substitution of high-end products and open up long-term space. We expect the company's net profit in 2019/20/21 to be 3.43/4.67/583 million yuan, EPS is 0.88/1.20/1.50 yuan, growth rate is 14.8%/36.3%/24.8%, and “buy” rating. Risk warning: Production capacity release progress is low expectations, and high-end market expansion is not expected.