Incident description Shagang Co., Ltd. released its report for the first quarter of 2017. During the reporting period, the company achieved operating income of 2,909 billion yuan, up 103.58% year on year; realized operating costs of 2,556 billion yuan, up 89.23% year on year; realized net profit attributable to parent company owners was 107 million yuan, up 2555.79% year on year; and achieved EPS of 0.048 yuan in the first quarter, 0.002 yuan in the same period last year and 0.040 yuan in the fourth quarter of 2016. The company released the 2017 semi-annual performance forecast. During the reporting period, the company achieved net profit attributable to the parent company of about 130 million yuan to 190 million yuan; according to the latest share capital calculation, the EPS for the first half of 2017 was 0.06 yuan to 0.09 yuan, compared to 0.03 yuan for the same period last year. The incident commented that the manufacturing boom continued and cost optimization, and profit in the first quarter hit a new quarterly high since 2011: the company has a production capacity of about 3.2 million tons of premium steel. The main products are steel for automobiles, steel for construction machinery, and steel for railways. Downstream demand is closely related to the level of manufacturing prosperity. The company's profitability in the first quarter was greatly optimized and reached a new high level in a single quarter since 2011. It should mainly benefit from the continued boom in terminal demand combined with steady progress in cost reduction and efficiency: 1) Or due to the lagging effect of real estate, the overall manufacturing sector has been doing well since 2017. The cumulative year-on-year growth rate of industrial value added in the first quarter increased by 0.50 percentage points to 6.80% compared to last year. Automobile production, excavator sales, and new ship orders increased 7.99%, 98.87%, and 25.40%, respectively, during the same period. Relatively strong manufacturing demand led to a year-on-year increase in special steel prices in the first quarter The index rose 78.23% year on year. At the same time, the China Steel Association estimates that the company's steel production in the first quarter increased 13.33% year on year. Under the influence of rising volume and prices, the company's revenue in the first quarter more than doubled year on year; 2) The company actively promoted all-round cost reduction, such as adjusting coal distribution and mineral distribution plans in a timely manner according to the cost performance ratio of raw materials, while focusing on energy recycling to achieve energy saving, environmental protection and low consumption, thus effectively reducing the overall cost of the company's products. The company's gross margin increased 6.66 percentage points to 12.16% year on year, ultimately setting the main tone for the company's significant year-on-year improvement in profit in the first quarter. Industrial inventory pressure is rising, and profit for the second quarter is expected to decline month-on-month: the company expects profit in the second quarter to fall by 21.75% to 78.04% month-on-month, or mainly due to high-pressure terminal procurement in industrial inventories. The cumulative year-on-year growth rate of industrial enterprise inventories in the first quarter of this year reached 8.30% year-on-year, and is gradually approaching the 9.30% year-on-year increase in automobile inventories in March, which also undermines the upward space for manufacturing terminal demand procurement, which in turn inhibits the rise in the price of special steel products. The company's EPS is expected to be 0.14 yuan and 0.15 yuan respectively in 2017 and 2018, maintaining the “increase in holdings” rating. Risk warning: 1. Demand in the steel industry has fluctuated beyond expectations.