The incident company released its 2016 three-quarter report. The first three quarters achieved revenue of 208 million yuan, a year-on-year decrease of 24.43%; realized net profit attributable to shareholders of listed companies of 2.09 million yuan, an increase of 150.92% over the previous year; and achieved an EPS close to 0.01 yuan, which is basically in line with expectations. Brief review 1. Oil prices have rebounded and the company's performance has improved, but the oil service industry is still in the winter. International oil prices rebounded from $30 per barrel at the beginning of the year and fluctuated to around $50 per barrel at the end of the third quarter. However, the capital expenditure of oil and gas companies is still shrinking. Even though the current oil price is out of the bottom, there has been no positive impact on the company's oilfield equipment business recently; the cost reduction and efficiency measures taken by the company have led to a year-on-year increase in profit in the company's oil and gas sales business and oilfield service business. Improvement. The oilfield equipment manufacturing business mainly develops and manufactures multi-phase flowmeters, fracturing equipment and environmental protection equipment for oil and gas fields. Sales of multi-phase flowmeter equipment improved, and some orders gradually realized revenue; fracturing equipment was affected by declining customer demand, and revenue and profit both decreased year over year; the overall revenue of the oilfield equipment manufacturing business fell by about 30% year over year, and gross margin remained basically stable at around 40%. The oil field service business mainly provides drilling business, gas well integration business and augmentation business, mobile testing services, and oil and gas field environmental protection services. With the gradual rebound in oil prices in the second quarter, some suspended projects of Middle Eastern oil companies began to gradually start, the service market improved, and customer service contracts were renewed; the company's oilfield environmental service business progressed steadily, and while completing integrated mud services and fracturing return fluid treatment business, it began to expand into fields such as oilfield sludge treatment; affected positively by these aspects, the revenue and profit of the oilfield service business began to stabilize. 2. Invest in CNNC Jiahua and enter the nuclear power equipment industry. At the end of August, the company invested 35 million yuan to successfully acquire 25% of CNNC Jiahua's shares, becoming the second largest shareholder of CNNC Jiahua. CNNC Jiahua has high barriers and scarce professional qualifications. It is an enterprise with manufacturing qualifications for civil and military nuclear safety equipment, weapons research and development qualifications, second-level confidential qualifications, and quality management system certification for military products and nuclear industries. It was originally the fifth branch of CNNC 404 Co., Ltd., which implemented military to civilian restructuring in 2006 in accordance with national policies. It has many years of experience in manufacturing nuclear fuel purification and conversion equipment, transportation containers, and spent nuclear fuel processing equipment, and has a very high market share. After years of development, China's nuclear power industry has entered a new stage of development. Nuclear power development has entered a stage of steady progress and a stage of “going global” strategy. In order to adjust China's current energy structure, the country has made speeding up the development of nuclear power a priority choice for energy construction. With the continuous development of the domestic nuclear power industry, the supply demand for nuclear fuel is also growing. The market for radioactive storage and transportation containers, equipment needed to expand production and construction of nuclear fuel systems, and non-standard equipment for major spent fuel reprocessing plants has huge potential for growth. Investment in the nuclear energy sector is expected to increase steadily during the “13th Five-Year Plan” period, and the nuclear safety and environmental protection industries are expected to grow rapidly. The market space for spent fuel processing is huge. It has been more than 20 years since China's earliest nuclear power plant, Daya Bay, was put into operation, and the second batch of domestic nuclear power plants was put into operation one after another around 2000. For the first batch and the second batch of nuclear power plants, there is or will soon be a situation where there is no place to store spent fuel, and there is an urgent need to build a spent fuel reprocessing base in China. By 2020, China expects to build 58 million kilowatt nuclear reactor units, generating more than 1,000 tons of spent fuel each year, with a cumulative total of about 10,000 tons of spent fuel; by 2030, 110 nuclear power plants will produce more than 3,300 tons of spent fuel each year (a 1 million kilowatt nuclear power unit produces 30 tons of spent fuel per year). The estimated investment in spent fuel treatment plants with an annual processing capacity of 1000 tons is 200 billion yuan. Theoretically, in the medium to long term, China needs at least 3 1,000-ton treatment plants, and the estimated investment amount is over 600 billion yuan. However, at present, there is only one pilot plant with a processing capacity of 50 tons/year in China, which still cannot meet the needs of 2 nuclear power plants. In order to make up for shortcomings in spent fuel processing, CNNC has formulated a clear plan to establish CNNC Longrui Technology Co., Ltd. to undertake the construction management of China's first nuclear fuel cycle industry demonstration project and the CNNC Gansu Nuclear Technology Industrial Park. The first phase of the project invested 30 billion dollars to build a nuclear fuel cycle technology demonstration project and component demonstration project with a processing capacity of 200 tons/year. This is the first industrial demonstration plant, which is scheduled to be completed and put into use in 2022. After that, the first independent commercial large-scale treatment plant for nuclear fuel circulation applications will also be built, with a processing capacity of 800 tons/year and an investment of 160 to 170 billion dollars, for the period 2025-2030. With the successive establishment and construction of nuclear power bases, nuclear fuel industrial parks, and spent fuel reprocessing plants in China, a professional equipment manufacturing, inspection, and maintenance service team is needed to support them, and the market prospects are broad. The 200-ton treatment plant currently under construction is nearing completion of infrastructure construction, and equipment procurement is expected to begin in 2017. Among them, non-standard equipment accounts for about half of the total investment. CNNC has provided 70% of non-standard equipment at the only domestic nuclear spent fuel processing pilot plant with an annual processing capacity of 50 tons, and has relevant experience and capabilities. 3. Acquire part of Stan Instrument's shares. Companies that are deeply involved in the oil and gas segment invested a total of 222 million yuan in early October to acquire 27.82% of Stein Instrument's shares, becoming the second largest shareholder of Stan Instruments. The transfer of part of Stan Instruments' shares is a strategic move for the company to enter the “smart oil well” and “digital oil field” fields and implement the “two-step strategy” (underwater and underground) of oil and gas exploration and development. The company is firmly optimistic about the development prospects of the oil and gas industry, insists on deepening the segmentation of the oil and gas industry, continuously improving the industrial chain and product structure through a combination of endogenous development and external mergers and acquisitions to enhance the company's market competitiveness. The company's oil and gas field multi-phase metering technology is at the world's leading level. Sitan instruments has obvious technological and market leadership in the field of logging and underground water injection tools for domestic oil and gas field production. This investment is based on the business development needs of both parties, making full use of each other's technical and operational advantages in segmented fields. Through the integration of resources and complementary advantages, the two sides have a collaborative and focused effect, enhancing the overall competitiveness and profitability of both parties. This is another acquisition by the company in the field of oil service equipment after Lanzhou Chenglin Petroleum Drilling Equipment Co., Ltd. and Shanghai Qinghe Machinery Co., Ltd. 4. Complete additional distribution to accelerate the layout of the oil and gas field environmental protection field In the first half of 2016, the company completed a fixed increase, issued 60 million shares, and raised a total capital of 708 million yuan. The company used 540 million yuan to raise capital to invest in the construction of an oil and gas field environmental protection equipment production and research base to improve the production and service capacity of vehicle-mounted environmental protection equipment for slurry without landing and fracking and draining. With the strengthening of environmental policies and the increasing environmental awareness of residents, it is expected that the market space for oil field environmental protection at the level of 10 billion dollars will open up. Fracturing backwater treatment vehicles are used to treat the fracturing backwater generated during oil and gas well fracturing. Through technical means, insoluble matter, harmful ions, and suspended particles are removed from the broken liquid returned from underground after fracturing, so that the return liquid can meet the standards for reformulating new fracturing fluid recycling, or the treated return liquid can reach standard discharge, so as to achieve the purpose of saving water resources and protecting groundwater from pollution. The oil and gas field environmental protection market for fracturing and wastewater treatment is basically in its early stages. Only a few enterprises have begun to enter this industry, and there are no large-scale leading companies. The company pioneered and manufactured a special fracturing and draining liquid treatment vehicle in China, which meets the technical and service requirements of domestic oil and gas field fracturing operations services. It has a first-mover advantage in the treatment and reuse of fracturing backwater, and has now entered the domestic oil and gas field environmental protection market to provide products and services. The company also invested 50 million yuan with the Gansu Stock Exchange Center and Gansu State-owned Assets Investment Group Co., Ltd. to jointly establish a 250 million yuan industrial fund. The main investment direction is enterprises with good growth in the fields of energy saving and environmental protection technology and equipment, energy saving and environmental protection products, energy saving and environmental protection services, and comprehensive resource utilization industries. It is expected that the company will rely on this energy saving and environmental protection industry fund to accelerate epitaxial layout in the field of oil and gas field environmental protection. 5. Recently, it is still difficult for the US shale oil invested in to make a profit in oil and gas exploration and development business. The company has its own operating team in the US and an oilfield operator license issued by the US state government of Texas, and is an independent operator of oil and gas development licensed by the US government. The company's shale oil and gas development block in the US has two main parts. One is the Niobrara block jointly developed with Carrizo. The total area of the block is 60,000 acres, and the company accounts for 10% of the interest; the second is the company's independent development block located in the Permain Basin in Texas, USA, with a total area of about 7,000 acres, with a total ownership block area of more than 13,000 acres. Affected by the low oil price factor, the investment in the company's oil and gas exploration and development business remained low, and no new wells were added to the Niobrara joint operation project; the Permian Basin's own block completed a total of test mining operations for two evaluation wells and one straight well drilling operation. As the relevant US state governments have increasingly strict environmental control measures, it is becoming more difficult to obtain new government drilling permits, which will limit the progress of future drilling operations; there is uncertainty about whether future single-well production in blocks invested by the company will meet expectations. Under current oil prices, it is still difficult for the company to make a profit in the US shale oil in the near future. Investment recommendations We predict that the company will achieve an EPS of 0.01 yuan, 0.06 yuan, and 0.11 yuan respectively in 2016-2018, giving it a “neutral” rating for the first time.