1H18's performance is consistent with the forecast.

Oriental Tantalum Industry announced 1H18 results: operating income was 520 million yuan, an increase of 11.6% over the same period last year; the net profit attributed to the parent company was a loss of 19.45 million yuan, corresponding to earnings per share of-0.04 yuan, and the loss decreased by 75.9 million yuan over the same period last year, which was consistent with the performance forecast, deducting the non-return net profit of-23.67 million yuan, and the loss decreased by 120 million yuan over the same period last year. 2Q18's single-quarter revenue was 280 million yuan, an increase of 23.5% over the same period last year, and its net profit was 9.52 million yuan, an increase of 52.33 million yuan over the same period last year and 38.5 million yuan from the previous quarter.

Comments: 1) the gross profit margin has improved. 1H18 metal tantalum price rose 40% year-on-year, driving the company's comprehensive gross profit margin from + 11.5ppt to 10.6%, of which tantalum and niobium main plate gross profit margin + 7.6ppt to 19%, energy materials plate gross profit margin + 13.0ppt to 12.5%, titanium plate gross profit margin decreased from 8.1ppt to-25%. 2) the asset impairment loss decreased by 1.7x to-2.24 million yuan compared with the same period last year, mainly due to the loss of 4.78 million yuan in 1H17 inventory price, and 1H18 returned to 3.28 million yuan. 3) the financial expenses decreased by 35% from the same period last year, affecting the after-tax EPS of about 0.01 yuan, mainly due to the reduction of exchange losses and the reduction of bank loans to reduce interest expenses; 4) the cash flow of operating activities decreased by 81% to 29.99 million yuan compared with the same period last year.

Trend of development

Asset swaps are still moving forward. In early May, the company announced the termination of its intention to purchase a 100% stake in Ningxia Co., Ltd. ("Western Materials Institute") of Northwest rare Metal Materials Research Institute through asset exchange and issuance of shares and cash payment. At present, the company continues to promote the purchase of no more than 30% stake in Western Materials Institute through asset exchange, and the progress and results are uncertain. Western Materials Institute is the only beryllium research and processing base in China. If the transaction is completed, it will help the company to expand the field of non-ferrous materials processing and improve the added value.

Profit forecast

As the company's actual loss in the first half of the year was lower than we expected, we raised our earnings per share forecasts for 2018 and 2019 to-0.22 yuan and-0.02 yuan.

Valuation and suggestion

The company's current share price maintains a neutral rating of 2.6 times Pamp B in 18max, but taking into account that it will take time for business to significantly improve and the overall market valuation level has moved down, we have lowered our target price by 19% from 8 yuan to 6.5 yuan, corresponding to 2.9 times 18max in 1919, which is 9% upside compared to the current share price.

Risk

Asset replacement uncertainty; demand and product sales are not as expected.