Summary of events: the company issued a semi-annual report on August 19, 2019. During the reporting period, the company achieved operating income of 812 million yuan, year-on-year + 3.89%; net profit of 271 million yuan, + 6.55%; and deduction of non-return net profit of 151 million yuan,-9.5%.

The increase in fuel subsidies promoted the growth of the company's reported performance compared with the same period last year, and the gross profit margin of the main business decreased compared with the same period last year: revenue: during the reporting period, the company's domestic passenger / vehicle transport volume was 1.345 million person-times / 374800 vehicles, respectively. Year-on-year is + 3.5% picket 20.5%, achieving operating income of 812 million yuan, year-on-year + 3.89% Cost side: due to the year-on-year rise in fuel prices, the company's main business cost is + 7.72% year-on-year, the gross profit margin is down 2.36pcts to 33.68%, and the gross profit is 273 million yuan,-2.9% year-on-year. Expenses: during the reporting period, the company's three fees totaled 56 million yuan, + 8.4% compared with the same period last year, of which management fees were + 35.49% compared with the same period last year, mainly due to the increase in equity incentive costs and managers' salaries. During the reporting period, the company achieved a net profit of 271 million yuan, + 6.55% compared with the same period last year, mainly due to the fact that H1 Company received a fuel price subsidy of about 147 million yuan (including other income) in 2019, an increase of about 46 million yuan over the same period last year. The net profit after deducting non-return is 151 million yuan,-9.54% compared with the same period last year.

New ships will be put into operation one after another in the next three years, and the company's market share of passenger and cargo rolling around the Bohai Sea is expected to further increase: according to the information disclosed in the mid-2019 report, the new passenger ro-ro ship "Zhonghua Renaissance" is expected to be put into operation in October 2019, we judge that "Zhonghua Renaissance" may replace older ships and put into passenger and roll-off business operation. At the same time, according to the 2019 mid-term report, the two ro-ro ships under construction are expected to be launched in April and July 2020, respectively. We believe that with the continuous commissioning of new passenger and cargo rolling ships, the company's share of the passenger and cargo ferry transport market around Bohai Bay is expected to further increase, and its performance is expected to maintain steady growth.

The company has the ability and possibility to maintain a high dividend ratio in the next three years: according to the company announcement, on May 21, 2018, the company completed the grant registration of 11.83 million restricted shares under the equity incentive plan, and from the date of grant and registration, all restricted shares will be unlocked in three phases, with a sales restriction period of not more than 5 years, and the lifting of the restriction shall meet the performance review targets of each stage. We judge that the company will maintain a good cash flow situation in the next three years, and there are no other major capital expenditure plans for the time being except for the announced new ships. Based on the above judgment, we believe that the company has the ability and possibility to maintain a high cash dividend ratio in the next three years (about 70% in 2018).

Investment suggestion: considering the steady growth of passenger and cargo ferry transport demand in Bohai Bay and the impact of new ship operation on the company's revenue and cost side, we estimate that the company's EPS in 2019-21 will be about 0.87 yuan / 0.88 yuan / 0.89 yuan respectively. With reference to the dividend rate of 70 percent and the current stock price of 9.00 yuan, the dividend yield for 2019-21 will be about 6.7%, 6.8%, 6.9% respectively. Assuming that the future dividend rate of 70% can be continued, on the basis of assuming 2019 EPS 0.87 yuan, the 2019 dividend is expected to be about 0.61 yuan per share, and assuming that the market can accept a dividend yield of 6% in the future, then the "overweight" rating will be given corresponding to the target price of 10.17 yuan.

Risk hints: policy changes related to refined oil price subsidies; the company's cash dividend ratio is lower than expected; the company has bank loans denominated in US dollars and euros, and the exchange rate fluctuation of RMB against US dollars or euros may have a certain impact on profits; macroeconomic downturn, Bohai Bay regional transport demand is lower than expected; capacity renewal or old ships have the risk of impairment of fixed assets.