Main points of investment

Performance summary: in 2016, the company achieved operating income of 35.094 billion yuan, down 35.93% from the same period last year; net profit attributable to shareholders of listed companies was 82 million yuan, up 101.12% from the same period last year; and net profit attributable to shareholders of listed companies was 1 million yuan, up 100.02% from the same period last year. For the whole year, the EPS per quarter was-0.04yuan, 0.08yuan, 0.04yuan and-0.06yuan respectively; ton steel data: the company produced 4.788 million tons of iron in 2016, down 28 percent from the same period last year; produced 5.5 million tons of steel, down 28 percent from the same period last year; and produced 5.355 million tons of steel, down 29 percent from the same period last year. Combined with the annual report data, the price per ton of steel is 3481 yuan per ton, the cost per ton of steel is 2378 yuan per ton, and the gross profit per ton of steel is 1103 yuan per ton, an increase of-948 yuan / ton,-2101 yuan / ton and 1153 yuan / ton respectively over the same period last year.

The recovery of the industry + reducing costs and increasing efficiency has led to a rise in profits: since the beginning of 2016, the fundamentals of the iron and steel industry have continued to improve, the demand side represented by infrastructure and real estate has stabilized and rebounded, and the construction recovery has strongly supported the demand of the iron and steel industry, resulting in a substantial rebound in industry profits. At the same time, during the reporting period, the company made great efforts to improve management efficiency, strictly implemented various measures to reduce costs and increase efficiency, and the cost per ton of steel was greatly reduced. The prosperity of the industry rebounded and superimposed itself to reduce costs and increase efficiency, and the company's profits have been greatly improved. From the perspective of subdivided products, the profit of stainless steel, the company's characteristic product, has increased significantly, and the gross profit per ton of steel has increased significantly from close to zero in 2015 to 2572 yuan / ton in 2016. therefore, the average profit of the company in 2016 is higher than the industry average. Short-term inventory disturbance demand remains high in the medium term: macroeconomic fundamentals remain stable at present, steel prices are under pressure due to recent traders actively shipping to cash in profit disturbance demand, but the downside space is relatively limited after a sharp decline, and short-term demand will remain relatively stable. The recent real estate regulation is disadvantageous to the demand of the industrial chain in the medium term. The biggest difference between this regulation and the previous 930 real estate regulation is that the central bank joins it, so the impact is greater, and the pressure in the later stage of real estate is more likely to increase. However, on the supply side, there was very little new capacity in 2017, coupled with the fact that the production capacity brought about by the investment in the last decade has entered the equipment scrapping period one after another, and the industry's capacity has been cleared at an accelerated pace. In addition, if the later supply-side reform exceeds expectations, the supply-side disturbance caused by capacity loss will further magnify the rebound in industry profits. Therefore, in the medium term, the overall supply and demand pattern of the industry is still expected to continue to be tight, and the profits of steel enterprises as a whole will still be in a strong range; investment advice: the company is the only listed company of state-owned steel enterprises in Gansu Province. has a strong market geographical advantage in stainless steel and other products. Benefiting from the stable fundamentals of the industry, short-term profits are expected to remain strong. At the same time, with the strengthening of infrastructure construction in Xinjiang and the promotion of the "Belt and Road Initiative" strategy, the company has further room for profit hints. We expect the company to maintain its "overweight" rating with EPS of RMB 0.37 and RMB 0.35 respectively in 2017 and 2018.

Risk tip: inflation and interest rates are rising too fast.