Incident review: On October 14, Linggang Steel Co., Ltd. released its 2017 three-quarter report. From January to September this year, it achieved operating income of 13.406 billion yuan, an increase of 32.28% over the previous year; it achieved net profit of 996 million yuan, an increase of 7120.69% over the previous year. Among them, net profit for the third quarter in a single quarter was 591 million yuan, an increase of 5287% over the previous year. Key investment points: The leader in the Northeast steel industry, and the enterprise strength is remarkable. The company is a long material manufacturer in Northeast China, mainly engaged in ferrous metal smelting and rolling processing. The main products include hot-rolled medium and wide band plates, rebar, wire, etc. The products are widely used in construction, automobiles, etc., and the business model is mainly self-production and self-sales. The company acquired 23003 blast furnaces and two 120-ton converters from the controlling shareholder Linggang Group in 2016. Production capacity and output increased dramatically. Steel production in January-September was 3.98 million tons, up 53.89% year on year; steel sales volume was 4,023,800 tons, up 45.95% year on year. Due to the recovery of the steel market, rising product prices and increased sales, the company's performance in the third quarter was impressive. Environmental production limits+revitalization of old industries in Northeast China, Q4 results are worth looking forward to. In the context of overcapacity, the country is promoting supply-side reforms. The company is reducing steelmaking production capacity around the main line of “removal of production capacity.” Environmental production restrictions during the “2+26” heating season kicked off. Environmental protection's compression on regional steel supply has further increased, and the supply side has shrunk significantly. The company is located in an unrestricted production area, close to the Beijing-Tianjin-Hebei Environmental Production Restricted Zone, and has obvious location advantages. The company's fourth quarter results are worth looking forward to. Furthermore, with the increase in construction projects such as high-speed railways in the surrounding area, demand for high-quality, high-performance construction steel is expected to continue to increase, supporting the company's performance to maintain a high level of performance. Deepen enterprise reforms and maintain core competitiveness. The company currently has 5 blast furnaces, including 2 450m3 blast furnaces, 2 1000m3 blast furnaces, and 1 2,300 m3 blast furnace, with a total pig iron production capacity of 5.35 million tons; 6 converters with a total crude steel production capacity of 6.16 million tons, providing conditions for the company to achieve strategic transformation and upgrading, improve premium steel production technology, enrich product structure, and enhance product market competitiveness. Judging from the regional competition pattern, the steel product structure of large steel companies in Northeast China and North China is mainly plate, while the company's long materials account for more than 70%. It is a bar and wire production base in Northeast China, creating a product differentiation advantage. First coverage, giving a “buy rating”. The company's performance in the third quarter was strong and profitability was strong. It is expected to achieve net profit of 1,563 billion yuan, 1,758 billion yuan, and 1,825 billion yuan in 2017-2019. EPS is 0.62 yuan, 0.70 yuan, and 0.72 yuan respectively, and PE corresponding to the current stock price is 8.82 times, 7.84 times, and 7.55 times, respectively. First coverage, giving a “buy rating”. Risk warning: interest rate risk; financial risk; macroeconomic policy risk: risk of downstream market demand falling short of expectations; risk of price fluctuations of the company's products.