Performance fell short of expectations. In the first half of 2015, Dongfang Tantalum achieved operating income of 600 million yuan, -65% year-on-year, net profit attributable to parent company - 156,000 yuan, equivalent earnings per share - 0.35 yuan, loss increased by 101% year on year, and performance fell short of expectations. Comment: 1) Sales revenue declined sharply year on year, mainly due to lower prices of tantalum powder and tantalum wire and lower product prices; market competition intensified, and foreign market share declined. 2) The gross margin for the first half of the year fell 9.6ppt to -6.7% year on year, mainly because losses in new industries, especially in the titanium sector, seriously dragged down overall profits. The development trend is based on the transformation and upgrading of traditional products. Despite the continued downturn in the tantalum-niobium market, the company's tantalum-niobium products still contributed ~ 60% of revenue in the first half of the year. Since 2011, the company has raised capital through allotment of shares to build tantalum metal target production lines, high-purity superconducting niobium production lines, chemical anticorrosive niobium substrates, and niobium-zirconium alloy pipe wires for photoelectric power supplies. Judging from the 12th Five-Year Key Product Catalogue of New Materials released, high-end tantalum-niobium materials are still receiving great attention, and the company may benefit in the future. Cultivate new industrial businesses. In the first half of the year, the company set up a total of 27 R&D projects to bring about new economic growth points. The company's titanium and titanium alloys are about 2,500 tons, but fierce competition in the civilian titanium market is dragging down profits; the development of beryllium-copper alloys has certain technical advantages, and there is plenty of room for the future. Dispose of loss-making assets. In order to reverse the loss situation, the company plans to divest and restructure the public assets of its photovoltaics, grinding, energy, titanium, and industrial parks (book value of 1.72 billion yuan). Currently, the transaction price is uncertain, and the one-time profit generated by this matter is expected to reverse losses. The profit forecast adjustment lowered the 2015/16 profit forecast 85%/147% to 0.03/-0.10 yuan to 0.03/-0.10 yuan to reflect that the performance for the first half of the year fell short of expectations. Please refer to Chart 3 for the main profit forecast assumptions. Valuation and recommendations 1) Starting in 2016, industrial optimization focused on the profitable tantalum-niobium business, and profits will improve year by year and provide a catalyst for stock prices; 2) The valuation method was changed from P/E valuation to P/B valuation; since the average P/B of the company's new materials deep processing sector was ~5, in a context where the company's profit will improve year by year, the valuation of 4.6x 2015e P/B received a new target price of 13.5 yuan (up 46.7%). Maintain a neutral rating. The profit of the new venture industry fell short of expectations; the price of tantalum and niobium continued to decline.