Expected to reverse losses in the first half of the year, CNOOC issued a positive profit warning: It is expected that the company's performance in the first half of the year will reverse losses, and net profit will not be less than 265 million yuan. In the same period in 2016, the company recorded a net loss of RMB 124 million. Focus on the main points Recurring profit is likely to be higher. We expect the company's reported net profit to be between RMB 280 million and RMB 300 million. Considering the improvement in the fertilizer and methanol market conditions in the first half of 2017, we estimate that the company's recurring core net profit may reach 350 million yuan. We believe that the company's predicted profit of less than 300 million yuan may be affected by one-time expenses. Losses were reversed thanks to rising product prices and last year's low base for production. In the first half of 2017, the company's urea ex-factory price (including VAT) increased 19% year on year to 1,646 yuan/ton. Furthermore, in the first half of 2016, Tomishima II and Amano urea plants were parked and overhauled for nearly 3 months, leading to a low production base year on year. Coal prices will support urea prices in the second half of 2017. We believe there is still room for domestic urea prices to rise in the second half of the year, mainly due to seasonal agricultural demand and rising coal prices. At the same time, stricter environmental regulations may promote the elimination of backward production capacity. The valuation and recommendations maintain the 2017/18 profit forecast and target price of HK$3.20 (16 times the 2017 price-earnings ratio). Maintain “recommendations.” Demand for risky fertilizers is lower than expected; implementation of environmental policies is weak; production and maintenance are discontinued.