The incident company 19H1 achieved operating income of 7.349 billion yuan, an increase of 8.22% year on year; net profit to mother was 351 million yuan, down 36.36% year on year; net profit after deducting non-return to mother was 210 million yuan, down 46.33% year on year. A brief review of the trade conflict+drop in cotton prices affected yarn revenue. The Q1 and Q2 revenue of high-speed network chain growth companies increased by 19.78% and -1.12%, respectively. The trade conflict between China and the US and the decline in cotton prices have been the main influencing factors for the company since this year. The yarn production capacity in the first half of the year was 1.89 million bars, which was basically the same as at the beginning of the year. Q2 yarn sales pressure was high, and revenue declined. Among them, exports were affected by the trade conflict between China and the US, and external orders were generally cautious. At the same time, US end customers reduced purchases from corresponding upstream suppliers in China. Therefore, although the company basically did not directly export orders to the US, it was greatly indirectly affected. Export revenue also fell 25.32% to 1,479 billion yuan in the first half of the year. Using yarn's overall revenue to deduct the company's export revenue, it is estimated that domestic yarn revenue also increased by 6.55% to 2.86 billion yuan as an estimate of domestic yarn sales. Furthermore, cotton prices have continued to decline since this year, leading to a corresponding drop in the unit price of the company's products under the cost plus, reducing the revenue growth rate. The network chain business maintained good growth. H1 revenue also increased by 41.35% to 3.656 billion yuan. The company controlled the continuous expansion of cotton processing and trading scale in Xinjiang, mainly charging fixed costs for processing, storage, transportation, etc., and Q2 grew faster than Q1. The net chain continued to lower the gross profit margin, and performance was pressured by the H1 composite gross profit margin of 9.87%, down 2.87 pcts; the Q2 gross profit margin was 9.30%, down 4.08 pcts. Mainly due to the increase in the share of network chain business with low gross margin, the gross margin of the network chain business fell slightly by 0.32 pct year on year to 4.62% in the first half of the year. The gross margin of yarn also fell slightly by 0.23 pct to 14.75% year on year, with export gross margin also falling 2.60 pcts to 1.37%. The continued decline in cotton prices affected pricing and gross profit space. The cost rate during the H1 period was 7.22%, up 0.98 pcts, and the management fee ratio increased 0.63 pcts to 3.18%, mainly due to the expansion of the network chain business scale; the financial expense ratio also increased by 0.47 pcts to 1.83%, mainly due to increased loans and changes in interest rate policies. Revenue growth slowed, gross margin fell, and expense ratios rose, leading to a decline in non-performance deductions in the first half of the year. In terms of non-recurring profit and loss, income from cotton futures trading and financial assets available for sale increased sharply. H1 investment income also increased 205% to 164 million yuan, but other income also fell 20.82% to 128 million yuan, mainly due to reduced government subsidies. The total amount of government subsidies included in profit and loss in the first half of the year was 209 million yuan, a decrease of 28.45%. Under the combined influence, the decline in H1's overall performance narrowed to 36.36%. Inventory at the end of H1 increased 13.9% to 5.348 billion yuan, and the number of turnaround days increased by 3 to 147 days. The slowdown in yarn sales had an impact, but it is still at a healthy level. The number of accounts receivable turnover days decreased by 2 to 19 days. The net cash inflow from operating activities reached 531 million yuan, or only 11 million yuan in the same period last year. Mainly due to the fact that cotton prices continued to fall in the first half of the year, the company was more cautious in purchasing cotton, and cotton purchase expenses decreased significantly. Investment advice: The company's production capacity in Xinjiang and Vietnam is two-wheel drive. Currently, Vietnam has about 300,000 ingots, and the first phase of 500,000 ingots has already been built. It is expected to be released one after another next year. Vietnam's production capacity will be released in a reasonable and orderly manner at a downstream pace in the future. In the first half of the year, due to the twists and turns of trade conflicts, external orders continued to be cautious, and cotton continued to fall due to sluggish demand. As a result, cotton costs were relatively high last year, which was not conducive to revenue calculation and gross profit margin. The 300 billion US dollar tax increase list was implemented in the second half of the year, and the tariff pressure on the textile and garment industry is unlikely to increase further. At the same time, it is expected that the company will effectively dilute costs and ease the pressure on gross margins after crossing the bottom position in the first half of the year. We expect the net profit to be 574 million yuan and 692 million yuan respectively in 2019-2020, corresponding PE is 13 times and 11 times, respectively. We are optimistic about the outstanding advantages of the company's color spinning industry chain. The upstream network chain in Xinjiang continues to expand and is expected to achieve high elasticity next year under a low base. Maintain a “buy” rating. Risk factors: New production capacity construction falls short of expectations; risk of cotton price fluctuations; poor network chain business development; exchange rate and trade frictions affect exports, etc.