Key events in the report describe that Shagang Co., Ltd. released its 2016 annual report. During the reporting period, the company achieved operating income of 7.585 billion yuan, up 3.10% year on year; operating costs of 6.697 billion yuan, down 4.83% year on year; realized net profit attributable to shareholders of listed companies of 220 million yuan, an increase of 301 million yuan over the same period in 2015; and achieved EPS of 0.10 yuan in 2016. In the fourth quarter, the company achieved operating income of 2.253 billion yuan, up 327.78% year on year; realized operating costs of 2,031 billion yuan, up 262.10% year on year; realized net profit attributable to shareholders of the parent company of 89 million yuan, an increase of 96 million yuan over the same period in 2015; and achieved EPS of 0.04 yuan in the fourth quarter, up 34.84% month on month. The company released a performance forecast for the first quarter of 2017. The net profit for the first quarter is expected to be between 85 million yuan and 110 million yuan, an increase of 2018% to 2640% over the previous year, and a month-on-month change of -4.49% to 23.60%. Based on the latest share capital, the corresponding EPS is 0.04 yuan to 0.05 yuan. Incident review manufacturing recovery+cost savings, and annual profit reached a new high since 2012: the company has a production capacity of about 3.2 million tons of premium steel. Specific products include automotive steel, construction machinery steel, railway steel, spring steel, and bearing steel. The downstream is mainly concentrated in the manufacturing sector. The company successfully turned a loss into a profit in 2016, and achieved a record high since 2012. The gross profit of a ton of steel and net profit of a ton of steel for the whole year were 299 yuan/ton and 74 yuan/ton, respectively. Specifically, the relatively significant improvement in the company's performance is mainly due to the recovery of downstream terminal demand in the manufacturing industry combined with open source savings: 1) due to the increase in production and sales of construction machinery, automobiles, and home appliances, etc., and the average price index of special steel rose 7.62% year on year; 2) proper cost control further expanded the company's profit margin. The company vigorously carried out cost reduction and efficiency strategies through various measures such as purchasing raw and auxiliary materials. In the end, the overall gross margin for the whole year increased 7.35 percentage points to 11.72% year on year, reaching a new high since 2010, thus setting the main tone for the company's significant performance improvement in 2016 . The boom continued, and profits continued to improve in the fourth quarter and the first quarter: the net profit belonging to the parent company reached 89 million yuan in the fourth quarter and hit a new high level in a single quarter since the 2nd quarter of 2011. This should mainly be due to the continued recovery in demand for manufacturing terminals in the fourth quarter. In addition, the company expects a significant year-on-month increase in profit in the first quarter, mainly due to the continued downstream boom and relatively weak raw ore coke prices. At the same time, low-cost raw material stock replenishment measures may further reduce cost pressure. The company's continued multi-dimensional cost reduction and efficiency measures will also increase performance improvement flexibility. The company's EPS is expected to be 0.14 yuan and 0.12 yuan respectively in 2017 and 2018, maintaining the “gain” rating. Risk warning: 1. Demand in the steel industry fluctuated beyond expectations; 2. The transformation progress was lower than expected.