Event description The company released its 2016 annual report and 2017 quarterly report. In 2016, the company achieved revenue of 2,638 billion yuan, net profit of 63 million yuan, a year-on-year decrease of 34%, and basic earnings per share of 0.12 yuan; in Q1 of 2017, net profit of 6.57 million yuan, a decrease of 47.04% over the previous year. Incident review [1] Demand for oil and gas pipelines has not improved significantly, and the main pipeline industry is still remarkable. Although oil prices rebounded from a low level in 2016, the average price was still lower than in 2015, and demand in the oil and gas pipeline industry did not improve significantly due to this. However, based on the company's diversified product advantages and rich and high-quality customer resources, during the reporting period, the company's pipeline sales were 756,300 tons, a slight increase of 1.38% over the previous year; the main pipeline business achieved gross profit of 358 million yuan, with a comprehensive gross profit margin of 14.15%, all reaching the highest in history. [2] Expenses increased significantly during the period, and participating holding companies suffered serious losses. The company's expenses during 2016 totaled 260 million yuan, an increase of 27.72% over the previous year. When there was no significant increase in revenue, the increase in expenses during the period was particularly impressive. Among them, management expenses increased by 42.36 million yuan, and financial expenses increased by 12.33 million yuan due to increased R&D expenses and increased interest expenses, respectively. In 2016, the shareholding company CNOOC Jinzhou fully accrued 40.88 million yuan in bad debts due to trade disputes, resulting in a sharp loss of more than 60 million yuan, and Shagang Jinzhou lost 2.06 million yuan due to market downturn and high costs. The increase in expenses during the period and losses of subsidiaries were the main reasons for the year-on-year decline in the company's performance. [3] The oil and gas pipeline industry is still expected to pick up, and the transformation expectations of changing controlling shareholders are strong. During the 13th Five-Year Plan period, oil and gas system reform, UHV transmission line construction, underground pipe galleries, and the Belt and Road are expected to increase demand. Although performance in the first quarter was not ideal due to investment losses and increased interest rates, the company signed a major supply order of 278 million yuan with CNOOC Zhanjiang in April, which is expected to contribute more than 30 million gross profit to the company, or indicate that the industry is likely to recover. Furthermore, in April 2017, the company completed the equity transfer, and the controlling shareholder was changed to Wanmulong Equity Investment Company. Although the restructuring of supporting assets was terminated, expectations for later transformation are still strong. [4] Investment suggestions: The company's net profit for 2017-2019 is estimated to be 1.07, 1.11, and 131 million yuan respectively; EPS is 0.20, 0.21, and 0.25 yuan respectively; the P/E corresponding to the current stock price is 49.17X, 47.14X, and 40.13X, which is rated as an increase in holdings. [5] Risk: Downstream demand falls short of expectations, and transformation progress falls short of expectations.