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During the reporting period, the company's performance maintained a healthy increase, and the construction of the Huizhou Industrial Park proceeded smoothly, completing the acquisition of its subsidiary, Research and Control Automation. According to quarterly data, the company's revenue in a single quarter was 440 million yuan, a year-on-year increase of 24.27%; The total profit achieved was 42.2617 million yuan, a year-on-year increase of 75.6%; The net profit attributable to the owner of the parent company was 44.617 million yuan, an increase of 33.93% year-on-year. 1) The construction of Huizhou Industrial Park is progressing smoothly and is expected to be put into operation in September. At present, the main building of the company's Huizhou Industrial Park has been completed. The company has re planned its lithium battery production line, with a significant increase in production compared to the original plan. It is expected to be put into production within the year. We believe that the current market demand is strong, and the increase in production scale provides space for the company's future performance growth; 2) During the reporting period, the company completed the acquisition of equity in R&D Automation. We believe that after the acquisition of R&D Automation, the company has acquired qualifications, channels, and technologies in the field of industrial control, and is expected to achieve industrial chain extension and customer resource integration, which is conducive to the rapid growth of the company's performance.

The optimization of revenue structure will enhance the company's comprehensive profit margin level, and we expect the profit margin level to continue to rise. In the first half of 2016, the company's comprehensive gross profit margin was 21.65% (a year-on-year increase of 3.46 percentage points), and the company's comprehensive gross profit margin for the second quarter was 21.63% (a year-on-year increase of 3.9 percentage points). We believe that the improvement of the company's profit margin is mainly due to the dual optimization of the company's product structure and customer structure. We anticipate that this increase in profit margin will have good sustainability.

During the company's period, the cost rate remained at a good level. During the reporting period, the company's expense rate for the period was 12.93% (a year-on-year increase of 2.33 percentage points), with a cumulative management expense rate of 9.9% at the beginning of the year (a year-on-year increase of 1.87 percentage points). The important reason for the increase in management expense rate is the increase in equity incentive expenses during the reporting period, the inclusion of subsidiary research and control automation in the consolidation scope, resulting in increased expenses and R&D investment. We believe that the increase in the company's expenses is temporary and the overall cost control of the company is good.

We have given the company an investment rating of 'overweight' for the first time. We estimate that the company's operating revenue for 2016/2017/2018 will be 1.901 billion yuan, 2.584 billion yuan, and 3.374 billion yuan, respectively; The net profits attributable to the parent company of the listed company are 107 million yuan, 160 million yuan, and 215 million yuan, respectively; The earnings per share were 0.24 yuan, 0.35 yuan, and 0.47 yuan respectively; The corresponding dynamic PE is 64.5 times, 44.23 times, and 32.94 times, respectively. We are optimistic that the company's output will increase to drive performance growth, and we are also optimistic about the effectiveness of channel integration and industrial chain extension after the company's merger and acquisition of research and control automation. For the first time, the company was given an investment rating of "increase in holdings".

Risk reminder: Unexpected fluctuations in downstream demand.

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