Main points of investment:

Events / news: the company released three quarterly reports. During the reporting period, the company achieved operating income of 3.843 billion yuan, an increase of 9.39% over the same period last year. Net profit returned to its mother was 539 million yuan, up 60.14% over the same period last year. The final realization of basic earnings per share was 0.18 yuan, with a weighted average ROE of 4.95%, an increase of 1.73% over the same period last year. The performance was basically in line with expectations. The volume of business is convenient, and the total throughput in the first three quarters reached 180 million tons, a steady increase of 5.77 percent over the same period last year.

The daily production line of "Public transfer Iron" has accelerated, and the coal throughput of Q3 has increased by 24.6% in a single quarter. As one of the trunk lines of transporting coal from west to east, the Wari line was officially opened to traffic at the end of the 16th, and then accelerated. According to the railway's three-year freight increment plan, the coal transport volume of the Wari line will reach 18 million tons in 17 years, 24 million tons in 18 years, 40 million tons in 19 years, and 100 million tons in 20 years. Rizhao Port, as a water port on the Wari line, will directly benefit from the volume on the Wari line. At the same time, the company's other railway line from Xinxiang to the west is Xinxiang, which forms the southern road for the outward transportation of Shanxi coal, which also benefits from the process of centralizing the transfer iron and coal sources to the "Sanxi" area. In terms of the company's coal business, Q3 handled 12.35 million tons of coal in a single quarter, an increase of 24.61 percent over the same period last year, an increase of 1.7 percent over the first half of the year, and a cumulative throughput of 32.94 million tons in the first three quarters, a substantial increase of 23.55 percent over the same period last year.

Benefit from Shanxi Iron and Steel boutique base one-step production and volume, the first three quarters of iron ore throughput steadily increased by 5.19%. The first phase of the high-quality steel base of Shanxi Iron and Steel Co., Ltd. was officially ignited and put into production at the end of last year. As a few new steel plants, the base is located in Lanshan Port area of Rizhao Port, which directly brings new iron ore throughput to Rizhao Port. Rizhao Port benefited from the commissioning of the Shanxi Iron and Steel Base. In the first three quarters, the iron ore throughput increased steadily to 109 million tons, an increase of 5.19% over the same period last year, and 4.81 percentage points higher than the national iron ore arrival growth rate. In addition, the first phase of the boutique base will be put into production in the first half of next year, which will contribute to the new cargo throughput for the company. In addition, timber throughput continued to improve, with timber throughput reaching 16.74 million tons in the first three quarters, an increase of 12.43 percent over the same period last year. Grain was affected by the decline in imports of beautiful beans. The grain throughput in the first three quarters was 9.41 million tons, down 8.91% from the same period last year, but the proportion of grain was relatively low and had little impact on the company's total business.

Maintain earnings forecasts and maintain "buy" ratings. The company announced in the third quarter that from August 1, 50% of the cargo port dues actually collected will be paid to Rizhao Port Group, which is expected to be no more than 55 million yuan this year, which will have an impact on profits. However, considering that the company lost 62.56 million yuan in investment last year due to the bad debt loss of the storage and blending coal company, this loss will not happen again in the same period this year, and the investment income will increase compared with the same period last year, which is offset by the impact of cargo port fees, so we maintain our previous profit forecast. It is estimated that the net profit from 2018 to 2020 will be 625 million yuan, 778 million yuan and 1.271 billion yuan, respectively, corresponding to 13 times, 11 times and 7 times of the current stock price PE. Relative to the industry average valuation, the company is undervalued and maintains a "buy" rating.

Risk hint: the amount on the Wati line is not up to forecast, and the base of Shansi Iron and Steel Co., Ltd. has not been put into production on schedule.