On August 2, the company issued the “2018 Semi-Annual Report” and the “Announcement on Key Operating Data for the Second Quarter of 2018”. The company produced 132,800 tons of profiles, 1,643 million tons of plate and strip, and 549,600 tons of other products in the second quarter of 2018. The company achieved operating income of 15.768 billion yuan in the first half of the year, an increase of 36.80% over the previous year, and net profit of 1,017 billion yuan, an increase of 3562.17% over the previous year. With the end of production restrictions and market recovery, the company achieved a sharp rise in volume and price. According to the company's business data announcement for the second quarter, the company achieved a total product output of 2,325,400 tons in the second quarter (132,800 tons of profiles, 1.643 million tons of strip, and 549,600 tons of other products), up 42.46% from the first quarter. In terms of profit, the company's gross sales margin and net profit margin for the second quarter were 15.24% and 9.39% respectively, up 5 pct and 7.33 pct from the first quarter, respectively. Net profit per ton of steel in the second quarter was 381.87 yuan, up 383.20% from the first quarter. The operating data for the second quarter improved markedly. On the one hand, due to the end of environmental protection production restrictions, the company's output increased markedly. On the other hand, the overall environmental protection policy in the first quarter suppressed the demand side. Beginning in April this year, demand was released centrally. Downstream demand remained strong to support product prices, and the company achieved a sharp rise in volume and price in the second quarter. The third quarter has not yet entered the heating season. Downstream demand is still expected to remain strong, the company's product production will remain high, and the “double high” level of production and price has helped the company continue to maintain a high level of profitability. Financial data was further optimized. The sales expense ratio, management expense ratio, and financial expense ratio of the company in the first half of the year were 0.88%, 2.16%, and 2.85% respectively. Among them, the rates for the three expenses (sales expenses, management expenses, and financial expenses) in the second quarter were 0.85%, 1.84%, and 2.52% respectively, down 0.08pct, 0.81pct, and 0.84pct respectively from the first quarter. As of the first half of 2018, the company's balance ratio was 77.04%, down 2.59 percentage points from the end of the previous year. We believe that as subsequent companies continue to make profits, the financial situation is expected to continue to be optimized, and internal vitality will continue to increase, which is beneficial to the long-term stable development of the company. The recovery of the downstream industry provides continuous impetus for the company's profits. The company's plate products are mainly medium and heavy plates and hot-rolled coils. Since this year, downstream demand for medium and heavy board has clearly recovered. According to statistics from the China Shipbuilding Association, orders for new ships accepted by China increased 99.59% year-on-year in January-May; according to statistics from the China Construction Machinery Association, excavator sales in January-May rose 60.18% year on year. However, demand for downstream shipbuilding and construction machinery is more sustainable and less volatile. As a result, we expect the recovery in the downstream sector to provide the impetus for the company to continue to be profitable. The company's operations are stable, maintaining the “increased holdings” rating, and the company's operation is stable. With the end of environmental production restrictions, production has returned to normal levels. It is estimated that the company's EPS from 2018 to 2020 will be 1.01 yuan, 1.17 yuan, and 1.32 yuan respectively. According to 6 times PE, the company's target price will increase from 5 yuan to 6.06 yuan. Risk warning: Risks such as downstream demand falling short of expectations, increased environmental protection, and failure of steel production to meet targets.