Incident description Zhongyuan Special Steel released its 2015 annual report. During the reporting period, the company achieved operating income of 954 million yuan, a year-on-year decrease of 21.70%; operating costs of 936 million yuan, a year-on-year decrease of 11.28%; net profit attributable to the parent company of -213 million yuan, compared to -47 million yuan in the same period last year; and an EPS of -0.42 yuan in 2015. In the fourth quarter, the company achieved operating income of 168 million yuan, a year-on-year decrease of 42.27%; operating costs of 222 million yuan, a year-on-year decrease of 9.02%; realized net profit attributable to shareholders of the parent company of -149 million yuan, compared to -27 million yuan in the same period last year; achieved EPS-0.30 yuan in the fourth quarter, and -0.08 yuan in EPS in the third quarter. The incident commented that downstream demand was sluggish, and the annual performance declined significantly: the overall demand in the downstream manufacturing industry and oil and gas extraction sector was sluggish in 2015, and the national manufacturing fixed asset investment growth rate in 2015 was only 8.10%, the lowest level in nearly ten years. The PMI index fell below the boom and bust line for five consecutive months in the middle of the year, while the international oil production industry continued to be sluggish, and international crude oil prices fell 35% throughout the year. Therefore, the company's revenue from customized precision forging parts, which are more relevant to the manufacturing industry, fell 37.15% year on year. Revenue from oil drilling tools used in oil extraction fell 37.15% year on year. At 36.26%, the company's annual operating income fell by 21.70% year on year, the gross profit margin of the main business was 1.10%, down 12.56% year on year, and gross profit increased by 146 million yuan year on year, setting a sharp downward trend in annual performance. In addition, asset impairment losses increased by $12 million year-on-year due to a year-on-year increase of $21 million in expenses and inventory impairment losses combined with bad debt losses, further amplifying the extent of deterioration in performance. Even if receiving government subsidies led to a year-on-year increase in non-operating income of $13 million, it did not have much effect on improving the performance pattern. In the end, net profit attributable to the parent company was 213 million yuan, an increase of 166 million yuan compared to last year. Poor demand compounded the commissioning of new projects, and the fourth quarter's performance fell to a low level: demand in downstream petroleum, coal, machinery and other industries continued to be sluggish in the fourth quarter, order volume did not pick up, revenue fell 48.29% and 36.27%, respectively, and gross margin fell sharply to 32.14%, resulting in a sharp decline in gross profit of 101 million and 063 million dollars over the same period, respectively. At the same time, in the fourth quarter, the company's high-clean heavy machinery equipment manufacturing technology transformation project was put into trial production. Due to the significant lower production rate in the new equipment production, qualifying output rate, etc., the management costs Up, month-on-month It increased by $14 million and $16 million respectively, further increasing the level of losses in the fourth quarter. In addition, a relatively large asset impairment loss was calculated at the end of the year, with losses of $11 million and $13 million, respectively, compared with the same period last month, which also continued to worsen the fourth quarter results. In the final fourth quarter, the company lost $149 million, up $122 million and $109 million, respectively, from the same period last month. Focus on special steel, optimize the structure and promote upgrading: As a heavy equipment manufacturing enterprise, we will focus on the production and manufacture of “special steel” in the future without diversifying operations. Through the implementation of the “High Cleanliness Project” and the introduction of vertical continuous casting machines, we will break through product boundaries, optimize product structure, and enhance the added value of the industrial chain. The company's 2016 and 2017 EPS are expected to be 0.03 yuan and 0.03 yuan respectively, maintaining the “increase in holdings” rating.