Events: on August 23, the company released its 2016 semi-annual report. During the reporting period, the company achieved operating income of 617 million yuan, down 2.61% from the same period last year. Net profit belonging to shareholders of listed companies was 41.9802 million yuan, down 17.03% from the same period last year. At the same time, the company forecasts that from January to September 2016, the net profit attributed to shareholders of listed companies will be 6221.02-76.5664 million yuan, an increase of 30% and 60% over the same period last year. Main points of investment:

The persistent downturn in the civil blasting industry is a drag on performance, and blasting engineering business has become a new performance contribution point. The main reason for the decline in the company's performance in the first half of 2016 is that due to the continuous slowdown of the national economy and the weak demand for civil explosive products, the overall situation of the civil explosive industry is still not optimistic, and the volume and prices of civil explosive products have declined to a certain extent, which is a drag on the company's performance. During the reporting period, the company's civil explosive revenue was 420 million yuan, down 13.86% from the same period last year, and explosive equipment revenue was 30 million yuan, down 12.25% from the same period last year. However, the company's blasting engineering business continues to grow. The company actively expand the blasting service business, rely on their own qualifications in blasting engineering to build competitive barriers to ensure the stable growth of blasting service business. During the reporting period, the business income of blasting engineering was 129 million yuan, an increase of 35.35% over the same period last year, and the gross profit margin remained stable. The main reasons for the expected growth from January to September 2016 are: (1) the blasting business will continue to grow compared with the same period last year; (2) the operating performance of some subordinate companies has improved compared with the same period last year; and (3) the goodwill impairment in the third quarter of last year is 26.8 million. There was no significant impairment of goodwill in the third quarter of this year.

The company is a national civil explosion enterprise group integrating scientific research, production, sales and blasting services. the products and services cover 10 provinces and autonomous regions of Anhui, Xinjiang, Anhui, Sichuan, Henan, Hubei, Fujian, Ningxia, Inner Mongolia, Jiangsu and Tibet, and have carried out key strategic layout in the resource provinces and "Belt and Road Initiative" bridgehead Xinjiang region. The company has a complete product structure and is in the forefront of the industry in terms of production capacity, scale and technical strength. When the industry is in the doldrums, the company, as an advantageous enterprise in the industry, actively promotes the upgrading of the main business of civil explosion, binds high-quality customers and increases market share through the implementation of mergers and acquisitions and integrated service extension and internationalization strategy. further expand the differentiated competitive advantage in the field of mine general contracting and civil explosion intelligent manufacturing.

We will actively promote new business transformation planning, lay out artificial intelligence and other new industrial areas, and explore new profit growth points. In April 2016, the company signed a strategic investment cooperation agreement with Zhejiang Rushan Huijin Capital Management Co., Ltd. (focusing on intelligent manufacturing, robotics, information security, cloud computing, big data, artificial intelligence, medical and health, clean technology, etc.) to explore equity investment and M & An opportunities in related industries to promote the sustainable development, transformation and upgrading of the company's business. At the same time, the company and Rushan Capital jointly initiated the establishment of an emerging industry fund-Zhejiang Zhoushan Huiying Venture Capital Partnership (limited partnership), with a subscription of RMB 90 million, accounting for 30 per cent of the total contribution of the partnership. At present, the industry fund is actively expanding in the fields of smart cars, self-driving, big data, information security, virtual reality (VR) and so on. In May 2016, the company bought a stake in Tianjin Fengshi Interactive Technology Co., Ltd. with its own capital of 18 million yuan. Fengshi Interactive is a provider of visual interaction technology in the field of artificial intelligence, and its technical level is highly recognized in the industry. it is mainly provided to VR/AR, smart car, smart TV and smart home to realize the gesture interaction function of this kind of products. This investment is another investment in the visual interaction technology application project after the company invested in the Turing robot voice interaction technology project in 2015. it has improved the layout of the company in the field of vision and voice-based artificial intelligence technology applications, and effectively promoted the transformation and development of the company.

Matters related to the non-public offering of shares will be carried out in an orderly manner. The company's non-public offering was examined and approved by the Securities Regulatory Commission in June 2016. The proposed fund of 1.1 billion yuan will be mainly invested in upgrading the company's main business, extending the industrial chain, expanding the mine general contract and repair business, carrying out integrated operation, and optimizing the industrial layout.

Maintain the company's "buy" rating. Based on the principle of prudence, the impact of non-public offerings is not considered for the time being. It is estimated that the EPS of the company from 2016 to 2018 is 0.11,0.13 and 0.16 yuan. It is optimistic that the company's main business continues to upgrade and blasting business continues to grow, while the layout of the artificial intelligence field continues to improve, which will usher in rapid growth in the future, covering for the first time and giving a "buy" rating.

Risk hint: the new business development is not up to expectations; the risk of intensified competition in the industry; the risk that the non-public offering can not be completed smoothly.