Main points of investment

The company's operating income reached 167 million yuan in the first half of 2016, down 42.51% from the same period last year, mainly due to the slowdown in economic growth and the decline in the scale of investment in petrochemical and coal chemical industries. From a quarterly point of view, the company's operating income in Q1 and Q2 reached 86 million yuan and 81 million yuan respectively, up-12.64% and-57.90% respectively over the same period last year.

The company's gross profit margin fell in the first half of 2016 compared with the same period last year. The company achieved a comprehensive gross profit margin of 31.99% in the first half of 2016, down 2.81% from the same period last year. From a product point of view, the gross profit margin of the company's engineering contracting, product sales and engineering design business was 21.94%, 41.44% and 38.09% respectively, down 7.43%, 5.45% and 15.51% respectively compared with the same period last year.

The company achieved a net interest rate of 13.78% in the first half of 2016, down 9.33% from the same period last year. The decrease of net profit rate is greater than that of gross profit margin, which is due to the increase in expense rate caused by cost rigidity, mainly from the increase of management expense rate. The rate of management expenses was 13.36%, an increase of 4.49% over last year, mainly due to the decline in income and base; the proportion of financial expenses was-2.71%, down 1.54% from last year, mainly due to the increase in loan interest of participating subsidiaries.

The company's asset impairment loss accounted for 2.59% in the first half of 2016, an increase of 2.91% over the same period last year, mainly due to a bad debt loss of 7 million yuan in Q2. The company's net operating cash flow per share in the first half of 2016 was-0.04 yuan, down 0.23 yuan from last year, mainly due to the decrease in rebates for total contracted projects in the first half of the year.

Earnings forecast, valuation and rating: we estimate that the company's EPS in 2016-2018 will be 0.16,0.18,0.22 yuan respectively, and the corresponding PE will be 56.4,49.3 and 41.7 times respectively.

Risk hint: macroeconomic downside risks, new business not up to expectations