Report highlights event description*ST Zhongte released its 2016 annual report. During the reporting period, the company achieved operating income of 874 million yuan, a year-on-year decrease of 8.41%; operating costs of 792 million yuan, a year-on-year decrease of 15.41%; realized net profit attributable to shareholders of listed companies of 05 billion yuan, a loss of 213 million yuan in the same period last year; and achieved an EPS of 0.01 yuan in 2016. In the fourth quarter, the company achieved operating income of 196 million yuan, a year-on-year increase of 16.70%; realized operating costs of 183 million yuan, a year-on-year decrease of 17.25%; realized net profit attributable to shareholders of the parent company of 95 million yuan, a loss of 149 million yuan in the same period last year; achieved an EPS of 0.19 yuan in the fourth quarter and -0.08 yuan in the third quarter. The incident reviewed government subsidies and asset sales, and successfully reversed losses in 2016: the company's main products were special industrial equipment and high-quality special steel billets, and the production of special equipment reached 87,300 tons. In 2016, when overall demand in the industry recovered, and the special steel price index bottomed out and rebounded, or due to product structure and cost control, etc., the company's own main business operations were not ideal, deducting a loss of 143 million yuan in non-net profit: 1) When the annual sales volume increased by 7.17%, the company's annual revenue fell 8.41%, which meant that the unit price of the company's products did not rise but fell, or was still sluggish due to the downturn of the company's products corresponding to downstream; 2) Although the cost rate for the three items fell slightly year on year in 2016, it was still as high as 23.9%, which also dragged down the company's operations. The specific performance of the company's financial expenses and sales expenses Expensive Enterprise; 3) The company's inventory rose significantly at the end of the year and the deterioration in operating cash flow, which also showed that the company's sales situation did not improve significantly. However, benefiting from government subsidies and the sale of some of its shares in the Group Finance Company, the company was able to reverse its losses in 2016. The disposal of assets in the fourth quarter helped reverse losses in the annual results, and losses were predicted again in the first quarter: the company's main business situation did not improve in the fourth quarter, after deducting a loss of 36 million yuan in non-net profit. However, with government subsidies and profits from the sale of some of the finance company's shares, the company achieved profit in the fourth quarter and led to a reversal of losses throughout the year. In addition, the company predicts that although the industry situation in the first quarter of 2017 has improved, the downstream industry for some of the company's products is still facing weak demand. Competition has led to insufficient orders and falling sales prices. It is estimated that revenue for the first quarter will drop by about 15% year on year, and net profit loss of 0.35 to 45 billion yuan, down about 65%-112% year on year. Overall, in the current situation where it is difficult for the industry to continue, and the main business is not optimistic, transformation may become one of the company's main ways out. At the end of 2016, the company also planned major asset purchases involving the financial sector. Although it was terminated due to immature transformation conditions, the company announcement stated that “in the future, the company will continue to follow the company's development strategy, actively create favorable conditions to further improve the industrial layout, find new profit growth points, and ensure the company's health and sustainable development,” and subsequent transformation initiatives are still worth looking forward to. The company's 2017 and 2018 EPS are expected to be 0.03 yuan and 0.04 yuan, maintaining the “increased holdings” rating. Risk warning: 1. Demand in the steel industry has fluctuated beyond expectations.