Incident: On October 29, Fengxing Co., Ltd. released its three-quarter report from January to September, the company achieved operating income of 315 million yuan, a year-on-year decrease of 18.89%, and realized net profit attributable to shareholders of listed companies of 1977,700 yuan, a year-on-year decrease of 23.55%, and achieved earnings of 0.27 yuan per share, a year-on-year decrease of 30.77%. Main point of view: The downstream industry is sluggish, and the downward trend in company performance is accelerating. The company is the largest manufacturer specializing in wear-resistant materials in the country, with a market share of about 6%. Downstream customers are mainly in cyclical industries such as cement and mining. Affected by the macroeconomy, the production capacity of the company's downstream customers declined significantly, which had a particularly severe impact on the company's performance in the third quarter. In January-September, the company's revenue fell 18.89% year on year, and fell 33.19% in the third quarter in a single quarter. Although the prices of the company's main raw materials, scrap steel, pig iron, and soldering iron fell sharply, the sales price of the company's products fell accordingly due to the slump in downstream sentiment. The gross margin of the company's products fell 1.45 percentage points from the same period last year in the first quarter and 1.97 percentage points in the third quarter compared to the same period last year, while the company's management expenses increased by 2.61% in the first three quarters and 7.21% in the third quarter, resulting in a 49.25% year-on-year decline in operating profit. In January-September, the company's non-operating income increased 107.6% year on year, resulting in the company's net profit falling by 23.55% year on year, while net profit after deduction fell by 49.68% year on year. The decline in net profit for the third quarter was even more significant. The company's net profit for a single quarter fell 82.7%, and net withheld profit fell 209.65% year on year. The downturn in downstream sales also caused the company's net cash flow from operating activities to drop sharply by 1069.63% in the first three quarters, and the decline in the company's performance accelerated. The pain of downstream transformation will inevitably be transmitted in the short term, and the market space for middle and high-end wear-resistant castings has a clear vision. In recent years, the macroeconomic downturn has been compounded by the pressure of transformation and upgrading and energy saving and emission reduction policies. The production capacity and performance of the company's downstream customers have shrunk significantly, and the pain of downstream transformation is difficult to avoid in the short term. In the medium to long term, the transformation and upgrading of downstream enterprises and the country's energy saving and emission reduction drive will promote the popularization and promotion of high-performance wear-resistant materials. The market concentration of the wear-resistant casting industry is also expected to increase, and the market space for middle and high-end wear-resistant castings has a clear vision. It has significant advantages in scale, technology, technology, etc., and is a leader in the middle and high-end wear-resistant castings market. The company is currently the largest manufacturer of wear-resistant balls in the domestic industry, with a production capacity of about 85,000 tons, and the company's production capacity can reach 100,000 tons when fully utilized. The company's IPO fund-raising project has an annual production cycle of 50,000 tons of grinding medium (ball, section). The production capacity of the project will increase to 135,000 tons after delivery. The company is in a leading position in the industry in terms of scale, technology, and process. As market demand for wear-resistant balls shifts to high-performance, high-quality high-chromium ball segments, the company's prospects as a leader in the middle and high-end wear-resistant castings market are promising. It is planned to cooperate with renewable resource companies to reduce costs and improve performance. The company's downstream industry transformation pain will inevitably spread and affect the company's short-term performance. Facing the current situation where the downstream industry continues to be sluggish, the company takes the initiative to reduce the cost of upstream raw materials and improve performance. On October 29, the company signed a project cooperation agreement with Ningguo Shuangying Renewable Resources Co., Ltd. to cooperate to establish a scrap steel processing and distribution center, mainly engaged in recycling, processing and sales of renewable resources, with an annual processing capacity of 200,000 tons of scrap steel. Profit forecasting and valuation. The current macroeconomic trend is still unclear, the recovery cycle for the company's downstream customers is still difficult to determine, and the downward trend in the company's performance in 2015 is difficult to reverse. In 2016, we expect that the overall macroeconomy will progress steadily, and that the company's fund-raising projects will begin to contribute production capacity. It is expected that the company's core assumptions such as revenue and gross profit will improve in 2016. We expect the company's 2015-2017 EPS to be 0.35 yuan, 0.55 yuan, and 0.60, respectively. The corresponding PE will be 115 times, 73 times, and 67 times, respectively, giving it an “increase in weight” rating.