The 1H2017 performance was in line with expectations, and Liyuan Refining announced 1H17 results: operating income of 1.51 billion yuan, up 29% year on year; net profit attributable to parent company was 3.1 billion yuan, up 14% year on year, corresponding to profit of 0.26 yuan per share. Net profit after deduction was 3.1 billion yuan, an increase of 15% over the same period last year. In 2Q17, the company's revenue was 860 million yuan, up 24% year on year, up 33% month on month, and net profit was 210 million yuan, up 17%/99% year over year, respectively. The main reason for the increase in the company's performance in the first half of the year was the increase in production and the increase in the share of high value-added products. Comment: 1) Production and sales volume increased, but overall gross margin decreased by 3.3ppt to 36.5% year on year. Among them, the gross margin of the industrial materials/decoration and construction materials/deep processing materials sectors decreased by 2.2ppt/5.7ppt/1.5ppt to 36.4%/31.6%/40% year on year, respectively. The rise in aluminum prices is one of the reasons for the increase in operating costs and the decline in gross margin. 2) Financial expenses increased by ~ 20% year over year to 135 million yuan, affecting EPS of about 0.02 yuan, mainly due to a year-on-year increase of 24.67 million yuan in interest expenses. Affected by the significant increase in revenue, the financial expense ratio decreased slightly by 0.7ppt to 8.9%. 3) Net cash flow from investment activities was -1.37 billion yuan, compared to -860 million yuan in the same period last year, mainly due to increased investment in projects in Shenyang. Trends, product upgrades, continue to advance. Construction projects for rail vehicle manufacturing and deep processing of aluminum profiles are still under construction. After completion, the company will have an annual production capacity of 1,000 passenger rail vehicles (400 EMUs, 400 aluminum alloy city rail subways, 200 stainless steel city rail subways), 1,000 aluminum alloy trucks, and 60,000 tons of aluminum deep-processing products. In the first half of this year, the project has entered the final stage. It is progressing smoothly, and some workshops have been put into operation. We believe that the gradual commissioning of the project will lay the foundation for the company's product transformation and upgrading and provide the company with long-term growth potential. Earnings Forecast We have maintained our earnings per share forecast for the full year 2017/2018. Valuation and recommendations Currently, the company's stock price corresponds to 16.6x 2018e P/E. We maintain our recommended rating and target price of RMB 16.30, which is 50.37% higher than the current stock price. The target price corresponds to 25.1x 2018e P/E. Risk projects have fallen short of expectations.