Event description Zhongyuan Special Steel released its 2016 three-quarter report today. The company achieved operating income of 678 million yuan in the first three quarters, a year-on-year decrease of 13.78%; operating costs of 609 million yuan, a year-on-year decrease of 14.83%; and realized net profit attributable to shareholders of listed companies of -90 million yuan, corresponding to an EPS of -0.18 yuan, compared to -0.13 yuan for the same period last year. According to this calculation, in the third quarter, the company achieved operating income of 202 million yuan, a year-on-year decrease of 7.35%; operating costs of 175 million yuan, a year-on-year decrease of 16.48%; net profit attributable to shareholders of listed companies in the third quarter of -41 million yuan, compared to -40 million yuan in the same period last year; EPS-0.08 yuan in the third quarter and 0.06 yuan in EPS in the second quarter. Incident review expenses were compounded by a decline in non-operating income. Profit was not achieved in the third quarter: due to marginal improvements in manufacturing demand, steel prices rose 20.62% year on year in the third quarter, and the special steel price index rose 16.05%, while at the same time, mineral prices fell 4.34% year on year, and Beijing scrap prices fell 2.22%. As a result, the weakening of steel mines contributed to the improvement of the company's gross margin, and gross profit increased by 118 million yuan year on year in the third quarter. However, due to the increase in interest expenses, the capitalization amount of interest expenses and the reduction in exchange profit and loss, financial expenses increased by 210 million yuan, weakening the margin of profit improvement. Furthermore, the decrease in non-operating income of 17 million yuan also further weakened the third quarter results. On a month-on-month basis, in the third quarter, the company's revenue fell 23.89% month-on-month, and gross margin increased by 1.75 percentage points. However, under the assumption that revenue declined, gross profit still decreased by 0.04 billion yuan month-on-month. Meanwhile, the company's three expenses increased by 11 million yuan month-on-month, which is also the reason why the company's losses increased month-on-month. Overall, the company's losses in the third quarter increased year-on-year. As a heavy-duty equipment manufacturing enterprise with a strong cycle, the company's profitability improved substantially, and demand in manufacturing and other sectors is yet to continue to recover. In addition, the company expects net profit for the fourth quarter to -30 million to -10 million, a year-on-year change of 80.00% to 93.33%, an increase of 25.00% to 75.00% over the previous month, and the loss margin narrowed. The company's 2016 and 2017 EPS are expected to be 0.01 yuan and 0.03 yuan respectively, maintaining the “increase in holdings” rating.