The performance significantly exceeded expectations, the growth rate of crude oil handling volume was higher than the industry level, and scheduled chartering reversed losses

Net profit increased by 15.3%, exceeding expectations by about 20%: during the period, Guande's revenue fell sharply by 87.8% to HK$429 million due to no crude oil trading business; the crude oil trade itself contributed little to the company's profit, while the in-period chartering market improved, and the new oil depot operation brought new contributions. The company's net profit for the first half of the year increased 15.3% to HK$435 million; diluted earnings per share were 17.5 HK cents; proposed interim dividend of 2.5 HK cents, in line with the same period last year. With the shift in the company's business focus, the impact of the trade sector was already very weak, so there was no development in the first half of the year. In the future, if a new business model can be developed by combining it with the company's warehousing and logistics business under the premise of effectively avoiding risks, the trade business will not be ruled out again; however, until the company implements it, we assume that this business will no longer contribute to profits.

Term chartering turned a loss into a profit, and Huade New Oil Depot began to contribute: the mid-term chartering market continued to improve, so that one of the company's ships still in the lease period received good profits. The gross margin was about 30%. After deducting the group's management expenses, the profit of the contract chartering sector reached HK$16.87 million, while the profit of the contract chartering sector reached HK$16.87 million, while it lost 12 million in the same period last year. On the Huade Terminal side, although there has been a slight decline in handling volume, since the 310,000 cubic meter crude oil depot in the South Side Stove signed a service agreement this year, it has already begun to contribute profits in the first half of the year, leading to a 10.6% increase in overall performance of Huade.

The handling volume of the six joint and joint terminals increased by 14.7%, far better than the industry level: during the period, the handling volume of the six crude oil terminals jointly operated and jointly operated by the company increased sharply by 14.7% to 8.973 million tons, driving an increase in investment income of 16.2%. The growth rate of handling volume was significantly higher than the 7.7% industry level, mainly because Sinopec's refining processing volume continued to grow and international oil prices fell sharply in the first half of the year. Sinopec closed some old oil fields with high costs and increased imports. We believe that the increase in handling volume was affected by oil prices, leading to import substitution and an increase in crude oil storage demand. There is a reason for this during a special period. Although the national crude oil import growth rate reached 29.3% in July, we temporarily conservatively assume that the handling volume at the six terminals increased by 12.4% throughout the year to 170 million tons.

The Yuji Line injection approval is progressing smoothly, maintaining expectations for the full year of 2016, and maintaining the purchase rating: Guande's new business, which is currently in progress, is divided into two major sectors. The first is the parent company's Yuji Line gas pipeline injection. The acquisition has gone through two feedback from the Ministry of Commerce and is in the third round of approval; overall progress is smooth. We still maintain the forecast for the full year of next year, but the completion time for this year is uncertain. For the time being, we have adjusted our assumptions to contribute two months. Another sector is overseas projects. Currently, the Fujairah project has been put into operation. In the next few years, LNG ships and Badan projects will also be built one after another. Overseas projects will also be a new source of profit for the company. We raised our performance forecasts for the period before and after the 15-year injection to HK$790 million/HK$82 million respectively, maintaining the 12-month target price of HK$7.84, corresponding to 23.8/15.0 times PE in 15/16 after the injection, maintaining our buying rating.