The performance was lower than expected: the company achieved operating income of 658 million yuan in the first half of the year, an increase of 8.98% over the same period last year. The net profit belonging to the shareholders of the listed company was 39.9777 million yuan, down 11.64% from the same period last year, equivalent to about 0.078 yuan per share, and the net profit excluding non-recurrent profit and loss was 23.2481 million yuan, down 46.14% from the same period last year, and about 0.035 yuan per share. The sharp decline in net profit after deduction is mainly due to a substantial increase in the provision for bad debts due to a sharp increase in the balance of accounts receivable in the first half of the year. At the same time, the rapid increase in corporate liquidity loans and increased exchange losses led to a significant increase in financial costs, as the performance was lower than we had expected.

Revenue increased slightly and gross profit margin fell slightly: although the company received more product orders in the first half of the year, large orders were relatively small. On the other hand, under the circumstances of the successive introduction of favorable industrial policies, some asphalt manufacturers have increased their capacity expansion, especially some state-owned enterprises have accelerated their influx into this market, resulting in intensified market competition. The price of asphalt products declined year on year in all months of 2014, and the average price in the first half of 2014 was 10.94% lower than that of the same period last year, so the main business increased only slightly in the first half of the year, while the comprehensive gross profit margin fell by 1.96%. With the arrival of the peak season of asphalt sales in the third quarter, asphalt prices are expected to pick up.

The company has steadily expanded its business: according to the recent announcement, the company has signed an asphalt procurement contract for the pavement project from Erlianhot to Guangzhou National Expressway from Anhua (Meicheng) to Shaoyang in Hunan Province, with a contract amount of 363 million. It accounts for 17.16% of the total operating income in 2013, so it will have a positive impact on the company's performance next year. At present, the company has nine subsidiaries in Shaanxi, Hunan, Jilin, Xinjiang, Singapore and other places, and the national layout has been gradually improved.

Investment advice: we expect earnings per share from 2014 to 2016 to be 0.15, 0.34 and 0.41, respectively. Yuan, the company has steadily expanded its business and maintained a buy-An investment rating, with a six-month target price of 9.5 yuan, equivalent to 28 times the dynamic price-to-earnings ratio in 2015.

Risk hint: the price of crude oil and asphalt products fluctuates greatly, and the company's business expansion is lower than expected.