Key points of the report Event description Lianyungang announced the 2013 interim report, achieving revenue of 767 million yuan, a year-on-year decrease of 5.08%, gross margin up 1.30 percentage points to 29.70%, net profit attributable to parent company owners of 98 million yuan, an increase of 10.58% year-on-year, and EPS of 0.12 yuan, compared to 0.11 yuan for the same period last year. Incident review The main business was stable, and “business reform and increase” contributed to the main increase in profits. The company's cargo throughput in the first half of the year increased 1.62% year on year, but since the company implemented a “business to increase” policy during the reporting period, the main business had to pay 6% value-added tax before revenue was confirmed, resulting in a 5.08% year-on-year decline in operating income. Furthermore, due to the company's remarkable cost control results during the reporting period, operating costs fell 6.80% year on year, driving the company's gross margin in the first half of the year to rise 1.30 percentage points to 29.70% year on year. Net profit attributable to owners of the parent company rose 10.58% (9.41 million) year on year. The main reasons include: 1) “business change” drastically reduced the company's operating tax in the first half of the year by 92.18% (23.35 million), which was the main source of the increase in the company's net profit; 2) among joint ventures, the company's net investment income fell 19.37% (9.24 million) during the reporting period due to the continued deterioration in COSCO Shipping operations. Looking at a single quarter, the company's operating income for the second quarter fell 12.30% year on year, and gross margin rose 3.55 percentage points year on year to 29.38% year on year. Net profit attributable to owners of the parent company was 54 million yuan, up 11.90% year on year, achieving an EPS of 0.065 yuan. The growth of coal and ore throughput was limited, and the contribution of small and medium-sized goods increased. The company's cargo throughput in the first half of the year was 35.038 million tons, an increase of 1.62% over the previous year, which fell short of the 10.38% growth rate of the whole year last year and the 6.39% growth rate of the entire Hong Kong region in the first half of the year. Among the main types of goods, the completed throughput of coal was 8.918,900 tons, down 9.58% from the previous year. The narrowing of internal and external coal price differences in the first half of the year and the slowdown in demand growth in the electricity and coal market limited the growth of the company's largest goods; iron ore throughput fell 18.80% year on year to 3,524,600 tons, accounting for 10.07%. Given that China's iron ore imports maintained a 5% growth rate in the first half of the year, we believe that the company was mainly affected by diversion factors from surrounding ports. Meanwhile, the total throughput of the remaining small to medium goods increased by 11.46%. Among them, the throughput of laterite nickel ore and non-ferrous ore increased by 19.30% and 29.28%, respectively. Maintain “careful recommendations.” The company's future fundamental highlights mainly come from: 1) the development of the port industry in the hinterland; 2) the expansion of the liquefied goods handling business; and 3) the increase in cargo volume brought about by the China-Japan-Korea Free Trade Zone. We maintain our 2013-2015 EPS forecasts of 0.21 yuan, 0.26 yuan, and 0.28 yuan, respectively, and corresponding PE of 14.40 times, 11.66 times, and 11.02 times, and maintain the company's “careful recommendation” rating.