Incident description CNOOC achieved operating income of 8.669 billion yuan in the first half of 2016, a year-on-year decrease of 52.4%, gross margin of 1.9 percentage points year-on-year to 4.9%, net profit attributable to the parent company falling 200.9% year-on-year to -840 million yuan, and EPS of -0.07 yuan. Incident review revenue declined sharply, and net profit turned into loss. In the first half of 2016, the company achieved a 52.4% year-on-year decline in operating income, mainly due to the company's restructuring and ceasing to engage in consolidated transportation business. Revenue from this business fell 76% compared to the same period last year (only from operations in the first two months of this year). Due to the same reason, the company's operating costs fell 51.4% year on year, not as much as revenue, dragging down overall gross margin by 1.9 percentage points to 4.9%. In the end, the company achieved attributable net profit of -840 million yuan, a year-on-year decrease of 200.9%. The main reasons for the sharp change in net profit were: 1) the company's gross margin declined by 813 million yuan compared to the previous period; 2) the company's long-term equity investment income in the current period fell 597 million yuan from the previous period due to restructuring and disposal of subsidiaries; 3) due to the increase in the scale of loans, the company's financial interest expenses increased by 3.7 million yuan over the previous period. The consolidated transportation business suffered serious losses, and the leasing business contributed the main gross profit in the first half of the year. After the restructuring, the company's main business will change from container marine transportation to comprehensive financial services focusing on ship leasing, container leasing, and African aviation financing, forming a “shipping+finance” business model combining industry and finance. By business, in terms of transportation business, since the company will no longer engage in consolidated transportation business in the future, this business has been drastically reduced. Meanwhile, due to the slump in the first half of the year (SCFI's semi-annual average fell 35.8% year on year), the freight forwarding business lost 850 million yuan in gross profit in the first half of the year. In terms of leasing business, the total capacity of the company's fleet reached 842,000 TEU (leasing abroad in the form of operating term leases), and the container holdings were 3.5 million TEU (ranked second in the world). In March of this year, the company leased its own ships, which led to a year-on-year increase in leasing business revenue by 128.9%, while achieving gross profit of 1.19 billion yuan, contributing to the main gross profit of the first half of the year. In terms of the African aviation financing business, the company will focus on medical care, education, energy and other fields, and its profitability will gradually increase, becoming a bright spot for the company in the future. In July, we received 243 million yuan in ship scrapping subsidies to cover losses due to changes in accounting estimates. On April 29, the company passed the “Proposal on Changing the Company's Accounting Estimation of Ship Assets and Container Assets”. The core content is to lower the ship's residual value benchmark, which will lead to an increase in current depreciation. The company expects net profit in 2016 to decrease by about 153 million yuan as a result. Meanwhile, on July 18, the company received a ship scrapping subsidy of 243 million yuan from China Ocean Shipping Group, effectively compensating for the reduction in the company's net profit due to changes in accounting estimates and increasing the company's net profit in 2016. Maintain the “Overweight” rating. We expect the company's 2016 EPS to be -0.06 yuan, maintaining the “excess holdings” rating.