The company's 2017H1 net profit increased by 7.15% compared with the same period last year, which is in line with our expectations. The net profit of 17H1, which belongs to the shareholders of the listed company, is 30.13 million (YoY+7.15%). 17H1 realized operating income of 1.548 billion (YoY+75.44%) and operating cost of 1.445 billion (YoY+81.62%). The increase in operating income mainly comes from the substantial increase in the income of the main LNG trading business, but due to the expansion of new markets, the gross profit margin of this business has dropped to about 4% compared with the level of about 6% in the same period last year. As a result, the company's overall gross profit margin fell by 3.2 percentage points, and the company's performance growth slowed down due to a 8 million year-on-year increase in sales and management expenses due to wage and additional growth. The company's 17Q2 performance declined in a single quarter, realizing a net profit of 16.05 million yuan (YoY-14.58%,QoQ-12.32%), mainly due to the increase in management expenses.

LNG trade distribution volume, leading to a substantial increase in revenue. The wholesale and retail business of gas such as 17H1LNG achieved revenue of 1.32 billion yuan, an increase of 98.55% over the same period last year. On the one hand, the company sold about 400000 tons of LNG trade in the first half of 2017, and realized income of about 1.2 billion yuan, an increase of about 93% and 101% respectively over the same period last year. At present, the demand for natural gas in the industrial sector is growing rapidly, exceeding the original market expectations. The company has four sales regions downstream, namely, North China (Beijing, Tianjin, Hebei, Shanxi), East China (Shandong), South China (Jiangsu, Zhejiang and Anhui) and Southwest China. The combined gas sales volume is about 3000 tons per day. On the other hand, it comes from the rise in product prices. In the first half of 2017, the transaction price in China's LNG market ended its three-year decline over the past three years, with an average price increase of about 150 yuan per ton.

The Energy Bureau once again emphasizes the strategic goal of natural gas as one of the main sources of energy. A high-level forum on the Great Energy Transformation was held on August 19 this year, and the China Natural Gas Development report 2017 showed that China's apparent natural gas consumption in 2016 was 205.8 billion cubic meters, an increase of 6.6% over the same period last year. Natural gas primary energy consumption accounted for 6.4%. It is expected that the apparent natural gas consumption in 2017 will increase by 10%, of which China's LNG imports will reach 44.9 billion to 45.9 billion cubic meters. The increase is expected to reach 32.8% to 35.8%. Nur Baikli, director of the National Energy Administration, pointed out at the forum: natural gas is an important basis for our country to promote the revolution in energy production and consumption and realize the green and low-carbon replacement of the main energy. at present, the supply of natural gas can only meet the needs of the country's 1x3 population. There is still a long way to go to achieve the goal of natural gas accounting for 10% of primary energy in 2020.

Downgrade profit forecast, downgrade to "overweight" rating: the company is the scarce target in LNG and even dangerous chemicals logistics, and has gradually formed a LNG application industrial chain. At present, the company's gas sales business such as LNG has developed steadily from the company's LNG trade logistics business. By giving full play to its advantages in the field of logistics, it is expected to become a leading enterprise in the LNG logistics distribution industry in the future. Considering that the company's performance is sensitive to the gross profit margin of LNG distribution business, with the decline of gross profit margin, we downgrade the company's earnings per share forecast for 2017-2019 to RMB 0.63,0.90,1.11, respectively, corresponding to PE of 38X, 27X and 22x for 17-19, respectively (before adjustment: RMB 0.69,1.00,1.30), downgrading to "overweight" rating.

Risk tips: 1) the company's LNG transportation volume fell short of expectations; 2) the price of crude oil fell sharply.