Key points of the report Incident description The company released the 2016 interim report. During the reporting period, the company achieved operating income of 476 million yuan, a year-on-year decrease of 16.24%; operating costs of 434 million yuan, a year-on-year decrease of 14.22%; and realized net profit attributable to the parent company was -49 million yuan, compared to -024 million yuan in the same period last year, and the corresponding EPS was -0.10 yuan. Among them, revenue for the second quarter was 265 million yuan, down 7.02% year on year, and the first quarter growth rate was -25.70%; operating costs were 234 million, down 7.14% year on year, and operating costs for the first quarter fell 21.26% year on year; net profit attributable to the parent company in the second quarter was -028 million, compared with -012 million yuan for the same period last year; EPS for the second quarter was -0.06 yuan, and Q1 EPS was -0.04 yuan. The company predicts that the company will achieve net profit attributable to shareholders of listed companies in the 3rd quarter to -011 million yuan, corresponding to EPS-0.06 yuan to -0.02 yuan, the 2nd quarter to -0.06 yuan, and -0.08 yuan for the same period last year. The incident commented that downstream demand was sluggish, and performance increased and lost in the first half of the year: The company's main products include petroleum drilling tools, restrictive core rods, cast pipe molds, large special steel precision forgings, etc. The products are widely used in major equipment manufacturing industries such as petroleum, chemicals, energy, and machinery manufacturing. In the first half of the year, the amount of fixed investment completed in the national manufacturing industry grew by only 3.26% year on year, down 6.4 percentage points from the same period last year, and crude oil prices fell 31.03% year on year, reflecting the continued slump in downstream demand for the company's products in the first half of the year. Furthermore, there were insufficient orders for related products, which led to a significant decline in performance in the first half of the year. Specifically, revenue from motion-limiting mandrel, which is closely related to the non-manufacturing industry, fell sharply by 69.58%, and gross margin decreased by 2.49 percentage points; revenue from petroleum drilling tools used in the oil extraction sector decreased by 56.68% year-on-year, and gross margin decreased by 6.16 percentage points. The poor performance of major products reduced the company's overall revenue by 16.24% in the first half of the year, and gross profit decreased by $21 million year-on-year, setting the tone for declining performance in the first half of the year. Furthermore, the company's interest expenses in the first half of the year increased significantly over the same period last year, causing financial expenses to increase by 90 million yuan, further exacerbating the decline in performance. Looking at the second quarter, against the backdrop of sluggish demand, the company's operating income fell 7.02% year over year, three expenses increased by 05 million yuan, and asset impairment losses increased by 104 million yuan, and the company's net profit in the second quarter fell sharply year on year. On a month-on-month basis, the decline in performance in the second quarter was mainly due to an increase of 14 million yuan in three expenses and a decrease in non-operating income of 112 million yuan due to a reduction in government compensation. There has been a breakthrough in market development for high cleaning projects, and product volume is expected to drive profit recovery: the company's P91 continuous casting blanks have not formed cooperation with domestic high-pressure pipe leaders, H13 continuous casting blanks have entered Baosteel special steel in batches for the first time, and wind power gear steel did not form cooperation with enterprises in Chongqing, Zhejiang and other places. Currently, all of these products have been supplied in batches, and future product volume is expected to drive the company's profit recovery. The company's 2016 and 2017 EPS are expected to be 0.01 yuan and 0.03 yuan respectively, maintaining the “increased holdings” rating.