According to the report released by the company, from January to June 2015, the company achieved a total operating income of 1.868 billion yuan, up 0.31% from the same period last year. The net profit belonging to shareholders of listed companies was 91.6114 million yuan, down 9.21% from the same period last year, and EPS0.28 yuan. Main points 1. Blasting project substantial growth support performance is stable, operating cash flow margin substantially become positive. While the demand in the civil explosion market remains weak and the growth of production and sales of civil explosive products remains low, the company's revenue in the first half of the year can still maintain a small increase compared with the same period last year, mainly due to the substantial growth of blasting engineering business. In the first half of the year, the company's blasting and construction business revenue reached 1.265 billion yuan, a substantial increase of 25.77% over the same period last year, in line with our previous expectations. In a single quarter, the company's operating income in the second quarter was 1.109 billion yuan, slightly lower than the same period last year, with a sharp increase of 46.11% compared with the same period last year. The net profit returned to its mother in the second quarter was 67.1 million yuan, up 173.81% from the previous quarter. In the first half of the year, the company's comprehensive gross profit margin was 25.32%, and the net profit rate was 5.08%, which remained basically stable. It is worth noting that the company's operating cash flow in the first half of the year was-118 million yuan, but the net operating cash inflow in the second quarter was 117 million yuan, which was significantly higher than the same period last year, mainly due to a sharp decline in cash payments for the company's engineering projects.

two。 The price of civil explosive products is liberalized, and the market competition is divided into regions. At the beginning of this year, the National Development and Reform Commission, the Ministry of Industry and Information Technology, and the Ministry of Public Security jointly issued a document, deciding to give full play to the market's own regulation mechanism and liberalize the ex-factory price of civil explosive materials. Affected by this, in some markets where the competition is more fierce, product prices have fallen sharply (the performance of listed companies has declined sharply). In the first half of the year, the company's business revenue from explosive products dropped significantly by 33.81% compared with the same period last year. From a regional point of view, the company's current explosive production capacity is mainly distributed in Guizhou, Gansu and Henan, and there are only two state-owned civil explosive enterprises in Guizhou Province. Among these major business coverage areas, income in Henan has dropped significantly by 41.72%, while in other regions such as Guizhou, due to strong market demand and a clear pattern of industry competition, the impact of price liberalization of civil explosive products is relatively small.

3. Do not break, do not stand, price marketization is good for the regional leader. The civil explosion industry is subject to production capacity and price control, and the growth of the supply side of civil explosion is limited. Although the marketization of the price of civil explosive products has an impact on short-term profits, in the long run, some small and medium-sized civil explosive enterprises with weak competitiveness will gradually withdraw or be integrated by other enterprises, and produce regional leading enterprises, while those with strong competitiveness and platform resources will stand out. At present, Poly Group has begun to launch large-scale M & An integration in key domestic regions, and the industry concentration is expected to increase rapidly and significantly. As the production and transportation of civil explosive products are still subject to monitoring and control, regional monopoly leaders will fully benefit from the process of price marketization.

4. The core benefit target of the reform of state-owned enterprises. As the first strong cooperation between the central government and the local government in this round of state-owned enterprise reform, Poly Group's entry into Jiulian development is a benchmark event in this round of state-owned enterprise reform. Poly Group is the only central enterprise with civil explosion as its core business, while Jiulian is the only integration platform for Poly Minbao business. In the future, it will continue to exceed market expectations in the direction of horizontal integration, overseas expansion and civil-military integration. In the next 3-5 years, the company is expected to become a world-class civil explosion giant enterprise.

5. Profit forecast and investment rating. Considering equity dilution (2015-2017 3.27,5.1 and 510 million, respectively), we estimate that the company's EPS in 2015-2017 is 0.62,0.99,1.58 yuan, respectively, and the corresponding PE is 40x, 25x, 16x. Maintain a highly recommended rating.

Risk tips: 1. The demand for civil explosions is declining; 2. The restructuring process was not as expected.