Key points of the report The incident described the company's report for the first quarter of 2017. During the reporting period, the company achieved revenue of 192 million yuan, down 8.82% year on year; realized operating costs of 190 million yuan, down 5.09% year on year; net profit loss attributable to shareholders of the parent company was 0.38 million yuan, loss of 0.21 million yuan in the same period last year; achieved EPS of 0.08 yuan in the 1st quarter, compared to -0.04 yuan for the fourth quarter of 2016. The company released the 2017 semi-annual results forecast. The net profit loss attributable to the parent company during the reporting period was about 60 million yuan to 0.75 million yuan. Based on this calculation, the company's net profit attributable to owners of the parent company in the second quarter was about 0.22 million yuan to 0.37 million yuan; according to the latest share capital calculation, the expected EPS for the second quarter was -0.07 yuan to -0.04 yuan, and the EPS for the same period last year was -0.05 yuan. Incident comments that gross profit combined costs remained high, and losses continued year on year in the first quarter: 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. Although the overall relative demand for terminals in the special steel industry in the first quarter led to a 78.23% year-on-year increase in the special steel price index, the company's first-quarter results showed a year-on-year increase in losses. The business situation was not optimistic, or mainly due to the company's relatively limited downstream recovery and high superimposed costs: 1) or due to the relatively lagging recovery of interest rates in major equipment such as petroleum, chemicals, and ships, the company's product production and marketing boom was limited, leading to a decline of 40.77% year-on-year in inventory in the first quarter, which showed that the company's willingness to further downstream purchases was insufficient, resulting in a gross decline of 3.88 one percentage point to 1.36%, It is at the second low point of only higher than 2015 Q4 since 2009; 2) The company's financial expenses for the first quarter increased 73.72% year-on-year, mainly due to increased debt pressure, and the company's balance ratio for the first quarter hit a new high for the same period since 2010; 3) Due to the decline in government subsidies, the company's non-operating income fell 91.14% in the first quarter, further hampering the company's profit improvement room. Operations have not substantially improved, and losses continue in the second quarter: The company expects to lose about 0.2 million yuan to 0.37 million yuan in net profit in the second quarter. Despite a month-on-month decline in performance, the continuous loss situation has not been reversed, mainly due to the fact that some of the company's products still face weak demand in the downstream industry, and orders are limited due to the intense competition pattern. Overall, in the current situation where the industry boom may be difficult to sustain and the operation of 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 the purchase of major assets involving the financial sector. Although it was terminated because the transition conditions were not yet ripe, the company announced 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 healthy and sustainable development.” 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 “increase in holdings” rating. Risk Warning: 1. Industry demand fluctuated beyond expectations.