Key investment performance summary: Hanggang Steel Co., Ltd. released a performance announcement for the first half of 2016. During the reporting period, the company achieved operating income of 9.353 billion yuan, a year-on-year decrease of 22.79%; realized net profit attributable to shareholders of the parent company of 339 million yuan, an increase of 233.31% over the previous year, and basic earnings per share of 0.23 yuan. Among them, net profit for the first quarter was 111 million yuan, EPS was 0.05 yuan, net profit for the second quarter was 228 million yuan, and EPS was 0.18 yuan. In the same period last year, the company achieved net profit belonging to shareholders of the parent company - 254 million yuan, earnings per share - 0.30 yuan; the semi-annual report performance improved dramatically: whether from a year-on-year or month-on-month perspective, the company's performance in the second quarter was impressive. On a month-on-month basis, since the fourth quarter of 2015, the company's single-quarter EPS performance has been -0.81 yuan, 0.05 yuan, and 0.18 yuan, respectively, and the trend of continuous improvement in performance is obvious. On a year-over-year basis, the company's performance in the first half of the year increased by more than three times, and the performance in the second quarter was the best in the company's single quarter since 2012. As a large steel company in East China, this increase in performance has, on the one hand, benefited from improvements in the industry, and on the other hand, is closely related to its active exploration of potential efficiency gains and reduced expenses. In the first half of the year, the gross margin of the company's products reached 9.03%, a record high in five years; industry profits continued to pick up: since December last year, a weak recovery in demand over the inventory cycle has led to a rebound in industry profits from the bottom, and the expansion of demand side in the second quarter of this year, especially in the real estate investment sector, caused a rapid recovery in steel mill orders and a large level of recovery in industry profits, although during the period The rapid decline in steel prices in May led to a contraction in industry profits, but in June, the decline stopped and stabilized, causing industry profits to return to an upward trend. According to our estimates, since the fourth quarter of last year, the gross profit of rebar steel in a single quarter was -3.5 yuan, 93.29 yuan and 182.59 yuan respectively. The gross profit per ton of hot rolled plate was -94.53 yuan, 51.59 yuan and 322.86 yuan respectively. The gross profit per ton of steel for medium and heavy plate in a single quarter was -310.2 yuan, -46.96 yuan and 53.53 yuan respectively. The recovery trend is expected to continue; although the average daily steel production in July fell by 6.9%, far exceeding market expectations But this could be July In connection with the severity of the floods, it is not yet possible to determine that the overall economy has begun to decline sharply again. Judging from the Politburo meeting held earlier to the PPP project, which recently attracted a lot of discussion, the focus of economic policy in the second half of the year was still “active fiscal policy and prudent monetary policy,” yet the statement “moderate expansion of aggregate demand” once again reflects the importance of steady growth. Infrastructure investment is expected to continue to maintain a high level, and the overall economy is likely to remain stable. Although social inventories have rebounded in recent weeks, the overall inventory level is still relatively low. As the intense heat subsides and the low season for steel consumption gradually comes to an end, the traditional peak season of the “gold nine silver ten” industry is expected to bring about a seasonal recovery in steel consumption. Combined with low inventories, later steel prices will generally be strong, and the trend of improving industry profits is expected to continue; the “steel+big environmental protection” strategy continues to advance; the company has placed assets related to the Banshan Steel industry through major asset restructuring in the early stages, and invested 100% of Ningbo Steel's shares, 87.54% of Ziguang Environmental's shares, 97% of renewable resources and 100% of supporting shares in renewable resources, and 100% of the shares in renewable technology. Funds are used to invest in assets and environmentally friendly sewage Treatment projects, steel energy saving and environmental protection projects, and metal trading e-commerce platform construction projects, etc., with a view to forming a “steel+big environmental protection” two-wheel drive development model. Among them, the asset exchange was completed in March of this year, and the relevant capital inspection and registration work to raise supporting capital was also completed in June of this year. The company's transformation and development strategy continues to advance. In the first half of the year, the environmental protection business, which is an important support point for the company's future development and transformation, continued to grow, adding 300,000 tons/day of sewage treatment capacity, achieving revenue of 149 million yuan and gross margin of 38.03%. Investment suggestion: Against the backdrop of macroeconomic stabilization in the second half of the year, terminal demand in the steel industry is highly supportive, which has become the biggest driving force for the company's continuous improvement in profits. Meanwhile, through the “steel+big environmental protection” strategy, the company's environmental protection business is expected to continue to grow in the future and become a new growth point for the company's performance. The company's 2016-2018 EPS is expected to be 0.51 yuan, 0.34 yuan, and 0.40 yuan respectively, giving it an “increase in holdings” rating.