The company 1H achieved operating income of 11.88 billion yuan, a year-on-year increase of 3.5%, net profit of 540 million yuan, a year-on-year decrease of 39.2%, an overall gross profit ratio of 8.0%, a year-on-year decrease of 0.1%, of which the gross profit margin of military goods was 12.6%, a year-on-year decrease of 1.9%; the gross profit margin of civilian goods was 9.4%, a year-on-year decrease of 0.4%; and a gross profit margin of 2.4%, a year-on-year increase of 1.5%. As the overall market demand in the garment industry is insufficient and competition for military supplies intensifies, some of the company's projects are in the construction period. Expenses for the three items are high, and the gross margin level of military demand and civilian goods has declined. However, due to the sharp depreciation of the RMB in the previous period, it was beneficial to the company's export business. The company strengthened cost control, and the 1H sales expense ratio was 2.0%, down 0.1% year on year; at the same time, 1H management expenses and financial expenses both increased by more than 3 percentage points year on year due to the company issuing bonds for transformation and upgrading and purchasing some land and high-tech equipment. Sales of traditional 2Q business terminals were under pressure. 2Q Company achieved operating income of 6.317 billion yuan, a year-on-year decrease of 9.7%, and net profit of 820 million yuan, a year-on-year decline of 50.93%. As a leader in China's military supplies industry, the company occupies about 70% of the market share, but with the relaxation of industry bidding rules and increasing competitive pressure, the company's profits have been squeezed to a certain extent. In this context, on the one hand, the company has strengthened the “JH1912” independent brand building and established an O2O three-dimensional marketing model, and on the other hand, it is actively seeking transformation and upgrading to the service industry. At the same time, as the first batch of state-owned enterprise reform pilot units, group companies will benefit from favorable reform policies. A series of reform measures such as staffing, corporate governance, and equity incentives will have a positive effect on the company's performance. Promote transformation and upgrading, and build an international garden. The company focused on building the Jihuayuan project during the “13th Five-Year Plan” period. Through the introduction of an advanced 1+X business model, the company created a new lifestyle experiential consumer cluster centered on international fashion brand shopping, integrating fashion, sports and entertainment, tourism, vacation and leisure, and specialty catering, and developed large-scale commercial complexes and modern service formats. The company began investing in the first phase of the Jihuayuan project in Chongqing City and Changchun City in 2014, and then promoted projects in Yangzhong, Xi'an, Xianning, Qingyuan and other places, leading a new consumption model, which is expected to bring new profit growth points. The fixed increase of 4.4 billion dollars was successfully completed. The company revised the fixed increase plan twice in June 2016. The capital raised was lowered from 5.952 billion yuan to 4.4 billion yuan, and the issuance reserve price was not less than 823 yuan/share. The lockdown period was one year. Of this, 4.1 billion yuan was invested in all 6 Jihuayuan construction projects, and 300 million yuan was invested in terminal market network construction. The plan was successfully completed at the end of July. We believe that the fixed increase project will provide sufficient capital for the company, ensure the smooth progress of the Jihuayuan project, and further promote the company's transformation and upgrading. Considering the large investment in the Intercompany Huayuan project, construction still requires a cultivation period, and the military and civilian goods business is under pressure. It is estimated that 2016-18 EPS is 0.32/0.35/0.39 yuan, 17E25xPE, with a target price of 8.8 yuan, and an “increase in holdings” rating. Risk warning. Competition for military and civilian goods businesses has intensified, and the progress of the Jihuayuan project has fallen short of expectations.