1H2017 is in line with expectations, and Zhangyuan Tungsten Industry announced 1H2017 results: operating income of 970 million yuan, up 81% year on year; net profit attributable to parent company was 5.16 million yuan, up 26.71 million yuan year on year, corresponding to earnings per share of 0.01 million yuan. Net profit after deduction was 8.85 million yuan, an increase of 61.23 million yuan over the previous year. The performance reversed losses year on year. In line with the express report, it mainly benefited from rising tungsten prices. Among them, operating income for the second quarter was 560 million yuan, net profit of 1.68 million yuan, net profit after deduction of 6.87 million yuan, an increase of 2.5x over the previous quarter. Comment: 1) The average price of domestic tungsten concentrate in the first half of the year was +13%, and the company's comprehensive gross margin was +8ppt to 12%. 2) Asset impairment losses increased by 15.43 million yuan, mainly due to preparations for impairment of accrued accounts receivable and preparations for recovery of last year's inventory price decline. 3) Non-operating income and expenditure decreased by 40.17 million yuan over the same period last year, mainly due to a reduction in government subsidies of $29.14 million and asset disposal losses of 5.2 million yuan. 4) The reduction in the effective tax rate rose to 64%, mainly due to deferred income tax assets. Trends High-performance tungsten carbide tool projects achieve loss reduction. In the first half of 2017, Ganzhou Oketai hard alloy products achieved sales revenue of 24.58 million yuan, an increase of 36% over the same period last year, net profit of 54 million yuan, a year-on-year decrease of 7.3 million yuan, of which CVD coated blades achieved sales revenue of 8.29 million yuan, an increase of 13% over the previous year; PVD coated blades achieved sales revenue of 6.9 million yuan, an increase of 693% over the previous year. Profitability is expected to continue to improve as project capacity utilization increases. Earnings Forecast We maintain our earnings per share forecast for the full year 2017/2018. Valuation and recommendations Currently, the company's stock price corresponds to 5x 2018e P/B. We maintain a neutral rating and target price of RMB 11.50, which is 6.48% higher than the current stock price. Stock prices will benefit from the continued rise in tungsten prices. Risk downstream demand fell short of expectations, and tungsten prices fell sharply.