Event: the operating income in the first half of 2016 was 5.637 billion yuan, down 16.32% from the same period last year; the net profit attributable to the owner of the parent company was 11.7493 million yuan, compared with a loss of 109 million yuan in the same period last year; and basic earnings per share was 0.02 yuan, compared with a loss of 0.21 yuan in the same period last year.

Comments:

The recovery rate increased, the output of lead and zinc decreased compared with the same period last year, and the output of rare and precious metals increased. In terms of main products, the company's lead and zinc production in the first half of 2016 was 58500 tons and 222900 tons respectively, down 2.51% and 10.13% respectively from the same period last year, and 53.67% and 47.43% of the annual planned output. The company's semi-annual output of indium and crude copper, the company's main comprehensive recovery products, has increased, while silver production has maintained last year's level. It is estimated that the total output of lead and zinc for the whole year will reach the preset 580000 tons, and the annual output of comprehensive recycled products will increase compared with the same period last year.

Government subsidies continue to help reverse losses for half a year. The company reported operating profit of-14.087 million yuan in the middle of 16 years, with a total profit of 14.365 million yuan. The important reason for turning losses into profits is two pieces of non-operating income. First of all, the deferred income of 14.008 million yuan of government subsidies for environmental upgrading and transformation, with a balance of 178 million yuan at the end of this period, the company's performance will benefit for a long time. Secondly, the company's main products and related production processes are in line with the tax rebate policy, as the company's main products remain unchanged, the project will continue to be good for the company's performance in the future.

Reduce the cost and improve the efficiency both internally and externally, and there is still room for cost reduction. Internally, we paid close attention to cost management, and all three fees decreased significantly in the first half of the year. In addition, the zinc precipitation processing fee decreased by 4% compared with the same period last year, the electric lead processing fee decreased by 10.8%, the transportation fee decreased by 20.21%, the business hospitality fee decreased by 26.76%, and the company's semi-annual operating profit increased by 89.9%. Externally, the company's current electricity costs are high, and the continuous promotion of power reform is expected to significantly improve the company's energy costs.

Affiliated to Minmetals Group, the integration of state-owned enterprises is expected. The actual controller of the company is China Minmetals Group, which is not only expected to inject lead and zinc assets under Shuikoushan, but also become a pilot state-owned capital investment company with assets of more than 700 billion yuan. The resource integration of the whole group is worth looking forward to.

Cover for the first time and give a "recommended" rating. We estimate that the EPS of the company from 2016 to 2018 is 0.04,0.11 and 0.22, respectively, and the corresponding PE is 251.4X, 98.9X and 51.3X, respectively.

Be optimistic about the continuous improvement of the company's performance and give it a "recommended" rating.

Risk tips: 1) product prices fall; 2) product demand drops.