The company's market positioning is clear, and the regional market share has increased significantly compared with the same period last year. The company is the only large iron and steel joint enterprise in Chongqing in line with the national industrial policy, and its products are mainly sold in the southwest and along the Yangtze River, and have obvious comparative advantages in the regional market. Since the judicial reorganization, the company has clearly defined the market position of "based on Chongqing, deeply ploughing Sichuan and Chongqing, radiating southwest". In the first half of 2018, the company reasonably arranged the product flow according to the market and customer demand, and actively expanded the channel layout. The market share of Chongqing and Chengdu increased significantly compared with the same period last year. In the second quarter, the market share of medium and heavy plate in Chongqing is 85%, and that in Chengdu is 60%; the market share of hot rolls in Chongqing is 80%, and that in Chengdu is 25%. At the same time, the company deeply analyzed the regional market demand and dug deep into the terminal market. In the first half of the year, the proportion of direct supply of major products exceeded 40%, and the sales volume of strategic direct supply users increased significantly.

The company actively focuses on the construction of major projects and key municipal projects in the regional market. Taking advantage of the western development and the development of Belt and Road Initiative, the company began to enter the steel market for steel structure. In the first half of the year, the company realized the supply of key infrastructure such as Xi'an Silk Road Conference Center, Chongqing Raffles, Chengdu Tianfu International Airport, Hengfeng Guiyang Center, Xi'an Olympic Sports Center, Xi'an Gold Trade Center, Longzhouwan Tunnel Project, Chongqing Light Rail Line 10, Yulin River Bridge, Luzhou Yangtze River Bridge, and Guangxi Pingnan third Bridge.

The production and operation of the company began to step into a benign track. In the first half of 2018, the company effectively implemented the production and operation policy of "full production and full sales, low cost and high efficiency", and actively implemented the strategy of cost leadership and manufacturing technology leadership. We will continue to promote the orderly connection of production, supply and marketing, stable and smooth production, obvious cost improvement and rapid improvement of system capacity. In the first half of the year, the company's output of iron, steel and timber was 2.7845 million tons, 3.1001 million tons and 2.9669 million tons respectively, an increase of 79.10%, 89.96% and 91.57% respectively over the same period last year. Steel sales reached 2.9435 million tons, an increase of 125.45% over the same period last year. The operating income was 11.093 billion yuan, an increase of 145.32% over the same period last year, and the total profit was 763 million yuan. Compared with the huge loss of 999 million yuan in the same period last year, the profit before interest, tax and depreciation rose to 1.348 billion yuan from 205 million yuan in the same period last year, an increase of 5.58 times. The asset-liability ratio at the end of the year fell further to 28.29% from 32.62% at the end of the first quarter, down 74.72 percentage points from 103.01% in the same period last year.

Supply-side reform and environmental production restrictions have promoted the continuous improvement of the efficiency of iron and steel enterprises. In the first half of 2018, the international trade environment became increasingly complex and severe, and steel exports continued to decline. However, due to the active implementation of supply-side reform in China's iron and steel industry, vigorously carrying out environmental protection supervision and inspection, implementing environmental protection production restrictions, consolidating and eliminating excess capacity and banning "strip steel", high-quality production capacity has been effectively released, and steel supply and demand is basically balanced. The central value of the steel price index rose from 107.61 in 2017 to 114.75 in the first half of 2018. Looking to the future, the trend of strict environmental protection in China will remain unchanged, and the efforts and areas of production restrictions on environmental protection will be further expanded, which will restrain the growth of iron and steel supply. On the demand side, with the changes in the domestic economic situation and the intensification of the Sino-US trade war, the tone of stable domestic economic growth has been established, the growth rate of infrastructure investment is expected to increase, and the fundamentals of steel supply and demand are further optimized. But at the same time, the evolution of the Sino-US trade war and the changes of the macroeconomic situation at home and abroad also bring some uncertainty to the operation trend of the iron and steel industry.

The net cash flow generated by the company's operating activities decreased significantly compared with the same period last year. In the first half of 2018, the net cash flow generated by the company's operating activities was-1.301 billion yuan, a sharp decrease compared with the same period last year. At the end of June 2018, the company completed the agreed full payment of the corresponding debts and related employee claims arising from the judicial decision to continue to perform the contract in the judicial reorganization procedure. 2. in the first half of 2018, the scale of production and marketing of the company was further expanded, the inventory of raw fuel increased significantly, and the funds occupied by the inventory at the end of the reporting period increased by about 674 million yuan compared with the beginning of the period. In order to ensure the resources, variety and quality of raw fuel, the company has gradually established a direct cooperative relationship with relevant excellent suppliers, and the advance payment of raw fuel has increased by 151 million yuan compared with the beginning of the period.

The company's goal is to become the most competitive iron and steel enterprise in southwest China. In the future, the company will continue to deepen reform, focus on the goal of full production and full sales, optimize the existing product structure under the guidance of market demand and profitability, continue to promote the marketing strategy of direct supply and direct sales, and further radiate the Yunnan-Guizhou region based on Sichuan and Chongqing. Expand the influence of the regional market in an all-round way. Further enhance the ability to respond quickly to market changes, promote the intelligent operation platform of finished product logistics online, improve logistics shipping efficiency, reduce logistics costs, and enhance user satisfaction; continue to start with system cost reduction and technology cost reduction, promote internal tapping potential and cost reduction, and strive to have strong cost competitiveness in the southwest region by the end of 2018.

It is estimated that the company's earnings per share in 18-19 years are 0.15 yuan and 0.18 yuan respectively. Give an overweight rating.

Risk tips: market risk, environmental protection risk