H1 performance exceeded expectations In the first half of 2018, the company's revenue was HK$840 million, down 11% year on year; net profit after tax was HK$755 million, up 7% year on year, which was better than our (3% year over year increase) and market expectations (year over year decline). Crude oil storage terminals are the main reason why the performance exceeded expectations. Revenue from crude oil and fuel storage services at some terminals increased, while terminal operating leverage exceeded expectations. The trend is that pipeline profits have bottomed out and rebounded, and profit recovery is expected to continue. In the first half of 2018, Yuji Line's profit before interest and tax was HK$210 million, an increase of 72% over the previous month, in line with our expectations. The gas transmission volume was 2.145 billion cubic meters, an increase of 5% over the previous month, and the pipe transportation fee was HK$0.232/m3, the same month on month. We believe that Yuji Line's performance in the first half of 2018 is more indicative than the second half of 2017, because the first half of 2018 was not affected by one-time cost factors, and at the same time, it basically fully reflected the impact of the reduction in management and transportation fees. We expect Yuji Line's profit before interest and tax to remain around HK$200 million in the second half of the year, and is expected to grow significantly in 2019. The main consideration is that Sinopec Dongsheng Gas Field is expected to supply new gas sources before next winter. High operating leverage boosts the profitability of crude oil storage terminals. The profit of crude oil storage terminals in the first half of the year increased 32% year on year, exceeding our expectations; crude oil handling volume increased 5.8% year on year. In addition to the sharp increase in handling volume at Qingdao and Rizhao terminals due to strong import demand from geological refining, we believe that the main reasons for the performance exceeding expectations are: 1) the increase in revenue from crude oil storage services at Qingdao Port and the fuel storage service at Huade Terminal; 2) operating leverage exceeded expectations. With imports growing steadily in the second half of the year, we expect high operating leverage to continue to drive profit growth at crude oil storage terminals. Risk of impairment of the Batam project. The Batam lawsuit is expected to end before the end of the year. If the lawsuit is lost, the company may be required to make a one-time impairment in value. Profit forecast Keep profit forecast unchanged. Valuation and recommendations Currently, Sinopec Guande is trading 5.5 times and 4.6 times the 2018-19 price-earnings ratio. The recommended rating and target price of HK$5.84 were maintained, corresponding to the price-earnings ratio of 9 times and 8 times 2018-19 and the upward space of 73%. Demand for risky crude oil imports declined; one-time impairment.