In the first half of 2016, the operating income was 1.305 billion yuan, 3.79% compared with the same period last year, and the net profit after deducting non-profit was 23.6431 million yuan, down 47.74% from the same period last year. The company's first-half results were slightly lower than we had expected. The net profit in the first three quarters is expected to be 80 million to 85 million yuan, an increase of 5.08% and 11.65% over the same period last year. Maintain the annual profit target of 213 million yuan.

Comments:

1. In the first half of the year, the income of aluminum processing business was 1.25 billion yuan, the profit was 59.37 million yuan, and the aluminum processing business exceeded expectations. Among them, the sales volume of Changshu is 58400 tons, with a net profit of 38.6516 million yuan, of which the sales volume of automobile materials is 20400 tons, and the product structure is further optimized. Shandong Xinheyuan sold 3747 tons, with a net profit of 15.435 million yuan, and is expected to realize the annual performance pledge of 28 million yuan. Baotou Chang aluminum sales volume of 43700 tons, a loss of 11.2566 million yuan, lower than we expected.

2. In the first half of the year, the income of the clean business was only 55 million yuan, with a loss of 19.19 million yuan. The loss of clean business is the main reason for the company's lower-than-expected performance in the first half of the year. The company's clean business is similar to the project contracting industry, with seasonal factors in revenue recognition, less revenue recognition in the first half of the year, and rigid cost expenditure, resulting in losses. At present, Shanghai Longmai has an order of 723 million yuan (the annual revenue target is 650 million yuan). According to the construction period of 3-6 months, Shanghai Longmai's order is expected to ensure a performance commitment of 87.9 million yuan for the whole year.

3. At the same time, the company announced that it had received Valeo Thermal system Group's significant intention order. Valeo intends to purchase not less than 12000 tons-18000 tons of automotive aluminum from the company in the next five years (an increase of 3000 tons-9000 tons compared with the average annual purchase volume of the previous five years). It is estimated that the average annual purchase amount of Valeo is about 240 million yuan to 360 million yuan based on the processing fee of 8000 yuan per ton. Valeo orders are expected to further increase the proportion of the company's automotive products and improve the overall profitability of the aluminum processing business.

4. Affected by the seasonal factors of clean business income recognition, the company's first-half performance is lower than we expected. In the second half of the year, with the confirmation of Shanghai Langmai on-hand order and the execution of Baotou Changshu export contract (Haier order), we maintain the company's 2016 net profit forecast of 208 million yuan. At the same time, the fixed increase of 680 million yuan over a three-year period in April this year will be implemented. At present, the company has sufficient funds on hand, which is expected to accelerate the landing progress of the transformation of the big health business.

We expect the company's EPS from 2016 to 2018 to be 0.29,0.42,0.74 yuan, with a three-year compound net profit growth rate of 60.07% and a target price of 13.92 yuan.

Risk tips: clean business is not up to expectations, aluminum processing fluctuates sharply, and epitaxial acquisitions are lower than expected.