Investment points Demand in the container industry is improving, container floor volume and price have risen sharply, and performance in the second quarter increased dramatically: in the first half of 2017, the company achieved operating income of 733 million yuan, an increase of 18.07% over the same period last year. By business, container floor and environmental protection board revenue was 394 million and 155 million, respectively, up 99% and down 53.9% year on year. Among them, Xinhuachang's Q2 performance was combined, contributing about 55 million in revenue. The sharp increase in container floor plate business mainly benefited from the recovery in container manufacturing, strong demand for bottom plates, and the company's production line was adjusted accordingly to increase the release of container bottom plate production capacity. It is expected that in the first half of the year, container bottom plate sales will increase by more than 40% year on year, bottom plate production and sales will rise, and volume prices will rise sharply; in terms of price, the average price for the first quarter and the second quarter will increase by about 10% year on year. Benefiting from booming demand and cost advantages, the company's gross margin improved markedly. The company achieved gross margin of 45.02% during the period, an increase of 4.78 percentage points over the same period last year. Demand in the bottom board industry was sluggish in the first half of 2016. Base board demand began to recover in the third quarter of last year, and the bottom board gross margin showed a quarterly improvement trend. In the first half of this year, demand for container manufacturing continued to rise. The bottom board business was close to full production and sales. Prices increased markedly compared to the same period last year, and gross margin increased markedly. On a quarterly basis, the company's Q1 and Q2 gross margins were 42.39% and 46.93% respectively. Q2 increased 8.65 percentage points over the same period last year, up 4.54 percentage points over the same period last year. The increase in container floor sales and freight costs plus the increase in forest resource maintenance costs have led to an increase in sales and management cost ratios. The company's fee rate for the period was 15.65%, an increase of 5.65 percentage points over the same period last year. Among them: the sales expense ratio was 4.09%, up 1.18 percentage points from the previous year, mainly because the container floor shipping fee increased 75% over the same period last year; the management fee rate was 9.29%, an increase of 4.46 percentage points over the previous year, mainly due to a sharp increase in forest resource management costs. This cost was 32.78 million, an increase of 450% over the previous year; financial expenses were basically the same as the same period last year, remaining around 2.3%. On a quarterly basis, the sales and management expenses ratio increased significantly in Q2 2017, with increases of 2.81 and 8.69 percentage points, respectively, over the previous year. The year-on-year decline in net operating cash flow is mainly due to the increase in raw material purchases and reserves this year: the company's net operating cash flow during the period was 54.92 million yuan, a year-on-year decrease of 15.63%, mainly due to increased raw material procurement and reserves due to increased sales during the period. Due to increased sales during the period and Xinhuachang's merger, accounts receivable increased by 57.92% year on year; at the same time, due to payment of project construction payments, forest resource asset purchases, etc., prepaid accounts at the end of the period reached 239 million yuan, an increase of 200 million yuan from the beginning of the period. Profit forecast and valuation: The recovery in container manufacturing boom has driven strong demand for floor boards, and the company has benefited significantly as an industry leader. At the same time, with the gradual release of the production capacity of the company's new container floor project, the production scale is expected to expand further; the future release of production capacity combined with the incremental expansion of Xinhuachang Group's customers is expected to drive continued rapid expansion of the company's scale. In addition, the company is also actively laying out wooden structures, which is expected to bring new growth points. We expect the company's 2016-2018 EPS to be 0.48, 0.58, and 0.70 yuan respectively, and the current stock price corresponding to PE is 21.0, 17.5, and 14.5 times, respectively, maintaining the “buy” rating. Risk warning: container manufacturing boom declined sharply, business expansion fell short of expectations