2016 Interim Report: The company's performance in the first half of the year reversed losses year-on-year, achieving net profit of 227 million yuan. The company achieved revenue of 18.430 billion yuan in the first half of the year, a year-on-year decrease of 45.45%; net profit attributable to the parent company of 227 million yuan, basic earnings per share of 0.037 yuan, both of which turned a loss into a profit over the previous year; the weighted average return on net assets was 2.48%, up 12.29 percentage points from the previous year. Among them, the second quarter achieved revenue of 9,927 billion yuan, up 16.75% month-on-month and down 32.77% year-on-year; net profit attributable to the parent company was 494 million yuan, turning a loss into a profit, up 142.31% year on year; and basic earnings per share of 0.08 yuan, up 0.12 yuan and 0.27 yuan year-on-year. Product gross margin was greatly improved and expenses were reduced, turning a loss into a profit. In the first half of 2016, the company's operating income fell 45.45% year on year due to a decline in product sales and a contraction in trade business. Affected by factors such as rising steel prices and limited increases in raw fuel prices, the company's product margin increased by 12.42 percentage points year on year, and product gross profit increased 1,643 billion yuan year on year; by product, the gross margin of plate, wire, bar, and coil increased by 16.97, 36.38, 41.00, and 14.95 percentage points, respectively. In addition, the company's sales expenses fell by 332 million yuan over the same period last year due to declining sales volume of the company's products, as well as the company's measures to optimize product flow and actively seek preferential railway policies. The company turned a loss into a profit in the first half of the year due to improved gross profit combined with falling expenses. Invest in the construction of a pulverized ore suspended magnetized roasting processing line to reduce the cost of pig iron. In June of this year, the company decided to invest 480 million yuan to build the first phase of the pulverized ore suspended magnetized roasting beneficiation and transformation project within the next 13 months. The pulverized ore suspension magnetization process has special advantages and high feasibility in processing difficult iron ore, and the selectivity of roasting products is clearly superior to the original long-term roasting process. After the implementation of this project, the comprehensive concentrate grade of the company's own ore is expected to increase from 52.81% to 59.50%; the iron recovery rate will increase from 72.64% to 81.85%; and the tailings grade will be reduced from 20.29% to 13.87%. The performance expectations of the industry and companies have improved. The upward rating to the “increase in holdings” rating benefited from the recovery in steel prices in the first half of the year, and the company's performance improved sharply over the same period last year. On the cost side, the company raised the grade of iron ore by investing in the construction of a pulverized magnetized roasting and selection production line, partly to hedge against the disadvantages of the company being located in the mainland and being transported far away. In terms of management, the company is actively improving the incentive mechanism and improving management efficiency. The company successfully reversed losses in the first half of the year and achieved net profit of 217 million yuan. The improvement in gross margin far exceeded market expectations. Considering that the positive impact of industry improvements and the company's internal operating efficiency is sustainable, the EPS forecast for 2016-2018 was raised from 0.01, 0.02, and 0.04 yuan/share to 0.10, 0.12, and 0.16 yuan/share; furthermore, the company is a leading enterprise in state-owned enterprise reform in Gansu Province and a “Belt and Road” bridgehead enterprise. In summary, there is still room for improvement in the company's product structure, management efficiency, and performance. 28-30 times PE is more reasonable. In 2016, the EPS is expected to be 0.10 yuan, then the stock price range is 2.8-3.0 yuan, raising the company's rating to “increase holdings.” Risk warning: changes in the economic situation; fluctuations in raw material costs and product prices; corporate management governance, etc.