Main points of investment:

The first half results are announced as follows:

Zhongyi earned 797 million yuan in the first half, up 6% from a year earlier. The net profit was 76.66 million yuan, down 21% from the same period last year. Due to the devaluation of the RMB in the first half of 2016, the company lost 16.68 million yuan on its US dollar loans and 3.62 million yuan on foreign currency contracts against the US dollar. Excluding foreign exchange gains and losses, the net profit attributable to shareholders was 97 million yuan, compared with 78 million yuan in the same period last year, an increase of 24% over the same period last year.

The board of directors decided to pay an interim dividend of HK1.4 cents per share.

Stable business development and rapid growth of natural products:

In the first half of the year, aroma and flavor business revenue of 500 million yuan, a slight increase of 1% compared with the same period last year, mainly due to the increase in sales, but the price dropped slightly. The sales of natural products were 166 million yuan, up 39% from the same period last year, and the gross profit was 29 million yuan, up 16% from the same period last year. Although the revenue of special chemicals decreased slightly by 4%, the gross profit margin increased and the gross profit increased by 9%. The company set up a natural resin purchasing team in Yunnan in the first half of the year, and the natural product production line has been running at full capacity.

Lay out new business areas:

The company is ensuring the steady development of the original business, the layout of the raw materials of the natural products plate is basically completed, and the second phase of Changtai natural essential oil is under construction step by step. In the second half of the year, the company will invest in the construction of application platform laboratory, with upstream and downstream applications as the research direction, to provide support for Zhongyi to the terminal product market.

On the other hand, the company sets up a functional materials laboratory to expand the business of functional materials.

Gu Lei officially started piling in the second half of the year:

Gu Lei project is the focus of Zhongyi's future development, but also began to layout and promote early in the morning. However, due to last year's Gu Lei PX project and Tianjin bombings, all projects in the Gu Lei area were suspended. Now the company has completed all the revised plans, and has passed the environmental assessment and safety assessment, and is expected to start piling soon. The investment amount of the first phase of the Gu Lei new plan will be increased from the original 650 million yuan to 1.15 billion yuan, creating a carbon 5 and carbon 9 industrial chain.

Maintain a highly recommended rating:

We are optimistic about the steady growth of the company's existing business and future development on the application side. We expect EPS 0.28HKD in 2016 to maintain a strong recommendation corresponding to PE 5.3 PB 0.53 and maintain the target price of HK $2.61 (adjusted excluding rights).