Incident description Hangzhou Steel Co., Ltd. released its 2016 mid-year report today. After retroactively adjusting the year-on-year base of the company's financial statements, the company achieved operating income of 9.353 billion yuan, a year-on-year decrease of 22.79% during the reporting period; operating costs of 8.509 billion yuan, a year-on-year decrease of 27.80%; realized net profit attributable to the parent company was 339 million yuan, compared to -254 million yuan for the same period last year; and achieved EPS of 0.23 yuan. The incident commented that the improvement in demand in the main steel industry was compounded by cost reduction and efficiency, and the performance in the first half of the year improved dramatically: the company fully completed asset restructuring and replacement in March of this year, and successfully invested 100% of Ningbo Steel's shares, 87.54% of Ziguang Environmental's shares, 97% of renewable resources, and 100% of renewable technology. The company's performance in the first half of this year improved significantly compared to the same period of last year's retroactive adjustment. It is mainly due to improvements in terminal demand in the main steel industry combined with cost reduction and efficiency in the context of steel assets being traded for the better: 1) The overall recovery in manufacturing and construction prosperity since this year, as evidenced by a significant increase in excavator sales in the first six months compared to the same period last year, which led to a recovery in demand for the company's main types of hot-rolled products; 2) The company effectively reduced production and operation costs through active technological transformation and promotion of cost reduction and efficiency strategies. 199 Yuan/ton, 18.2 yuan/ton lower than the budget. As a result, the improvement in demand for hot rolling combined with open source savings led to a sharp increase in the gross margin of the steel business by 14.02 percentage points over the same period last year, and contributed to a year-on-year increase of 633 million yuan in gross profit in the first half of the year, which became the main reason why the company's performance turned a loss into a profit. Furthermore, although the scale of the company's trade business for scrap steel and ore expanded rapidly, the gross profit of the trade sector business decreased by 32 million yuan year on year due to the year-on-year decline in steel prices; although the revenue of the environmental protection industry rose sharply, the decline in gross margin led to a decrease of 28 million yuan in gross profit. “Steel+environmental protection+renewable resources” went hand in hand, and the transformation progressed steadily: through this replacement and restructuring, the company's business has thus transformed from a single steel to a diversified business pattern of “steel+environmental protection+renewable resources”. Ningbo Steel's main product with a production capacity of 4 million is hot-rolled coil, which is a type with high added value, and the company's steel profitability is expected to improve; while renewable resources is mainly engaged in recycling and dismantling of end-of-life vehicles, scrap metal dismantling and processing, Ziguang Environmental Protection focuses on sewage treatment, recycling technology specializes in the wholesale and import and export business of recycled metal materials, metallurgical materials, coal, and steel, and recycled materials research and development, etc., and the cornerstone of the company's transformation and environmental protection has been laid. The steel and environmental protection business pattern has been established. In addition, the company has also raised 200 million yuan to build an e-commerce platform for metal trading, which is committed to speeding up the pace of transformation and is looking forward to the effective opening up of the company's future business development space. The company's 2016 and 2017 EPS are expected to be 0.24 yuan and 0.28 yuan respectively, maintaining the “buy” rating. Risk warning: 1. There is systemic risk in the market; 2. Demand in the steel industry has fluctuated beyond expectations.