Event: The company released the 2018 semi-annual performance forecast announcement: It is expected that the first half of 2018 will achieve net profit of 900 million to 1.05 billion yuan, an increase of 870 million to 1.02 billion yuan over the previous year, an increase of 3142% to 3682%. Key investment points: Strong prices for medium and heavy plates, benefiting from a favorable downstream supply and demand pattern, and strong endogenous growth momentum. In addition to losses in the first half of last year, the company's performance exceeded expectations. In addition to losses in the first half of last year, the high sales boom in medium and heavy board sales, the main product, may also be an important reason. Benefiting from strong sales of downstream construction machinery and the recovery of steel structures, shipbuilding, and pipelines, medium and heavy plate became the strongest performing variety in various sub-steel fields this year. In a situation where steel prices were high year on year and low month on month this year, according to Langer Steel Network, the average price of medium and heavy plates in June was 4,370 yuan/ton, up 3% from 4,243 yuan/ton in January. The company has a production capacity of more than 2.5 million tons of medium and heavy plates, and produced 2.3 million tons of medium and heavy plates in 2017, accounting for 28% of the annual steel production. The company's sales area is mainly located in Henan. Its fixed asset investment is at a high level in the country, regional steel supply is less than demand, and the supply and demand pattern is good. In the future, Zhengzhou's “Central City” plan has a total investment of 4.37 trillion yuan (“Outline of the Plan for the Construction of a Central City in Zhengzhou”). The company will directly benefit from driving steel demand in the long term. In 2018, the company plans to produce 8.78 million tons of materials, an increase of 16% over the previous year. It is foreseeable that the company will lean more resources towards medium and heavy plates with strong prices. Move forward with fixed increases and decreases. The company's debt ratio as of the first quarter of 2018 was 78.8%, which is higher than the industry average of 65%. The company raised a fixed increase of no more than 2.5 billion yuan from Angang Steel Group, all of which will be used to repay loans and interest-bearing liabilities. The current plan has been approved by the Provincial State-owned Assets Administration Commission, and future implementation will improve the capital structure to a certain extent. PSL approval has been tightened, and the market report in the sector is worth looking forward to. Assuming that downstream demand for steel remains flat in 2018, the impact of removal of production capacity and environmental production restrictions on steel prices weakens marginally. There is no basis for a sharp rise in steel prices, and there is no trending market. The sector's rebound in June was mainly due to impressive real estate development data for January-May. The market believes that resilient real estate investment can hedge against the decline in infrastructure investment and regain confidence in the medium-term trend of demand. However, the tightening of PSL approval affected sales and development in third- and fourth-tier cities, and the market's optimistic expectations were shattered. The Shenwan Steel sector also experienced a 5% pullback last week. However, we believe that demand may move forward in the fourth quarter of this year. Currently, social inventories of about 10.2 million tons are low. Steel prices in 2017 mainly began to rise in the third quarter. In the second quarter of this year, Langer's composite steel price was 4,351 yuan/ton, far exceeding 3,701 yuan/ton in the same period last year. It is expected that all major steel companies will record an excellent increase in reported performance. Currently, the overall PE of the sector is about 8 times, and the PE of high-quality individual stocks is 4-5 times. They are all at absolute low levels in the past five years. At the same time, performance growth has been determined, and the growth rate has exceeded expectations. Investors are advised to seize the sector at a low level in the market and individual stocks to rebound. Maintain an increase in holdings rating. The company's production has potential to rise, and the downstream supply and demand pattern is good. The market value of tonnes of steel is 1,234 yuan, 4.8 times PE (TTM), which is at a low level in the industry. The company's 2018-2020 EPS is expected to be 0.79/0.81/0.82 yuan, corresponding to PE 4.86/4.74/4.65 times, maintaining an increase in holdings rating. Risk warning: macroeconomic decline, downstream demand falls short of expectations; removal of production capacity falls short of expectations, and steel prices have fallen sharply; environmental production restrictions have become stricter, and the company's steel production has declined markedly; the pace of capacity replacement is slow, and production restricted areas are expanding; targeted increases are uncertain.