Event

The company released a semi-annual report that its revenue in the first half of 2017 was 936 million yuan, an increase of 75.6 percent over the same period last year, and the net profit returned to its mother was 63 million yuan, an increase of 36.74 percent over the same period last year. Of this total, revenue in the second quarter was 540 million yuan, up 51.72% from the same period last year, and the net profit returned to the mother was 31 million yuan, down 23.34% from the same period last year.

The sales volume and prices of the main products of the beneficiary company have risen rapidly, and the company's revenue has increased significantly. The company's business consists of prestressed steel and track plates, of which the prestressed steel industry, which accounts for 94.38% of the company's revenue, achieved an income of 884 million yuan, a sharp increase of 79.84% over the same period last year. The main reason is that the sales price per ton has risen 31.67% compared with the same period last year, and the sales volume has increased by 36.62% over the same period last year. In terms of price, mainly due to the recovery of the domestic steel market, the steel price has increased greatly, the price of the steel industry has been transmitted upstream and downstream, and the price of prestressed steel has increased with the rise of the raw material price of steel mills; in terms of sales, it is mainly due to the increase in market demand for prestressed steel strands. The income of the track plate, which accounts for 4.57% of the company's revenue, reached 42.78 million yuan, an increase of 23.35% over the same period last year, mainly due to the completion of the Jianping project of the subsidiary track company, and the basic acceptance of the track plate business of the Jianping project was basically completed by the end of the reporting period.

Revenue growth was 75.6% lower than cost growth of 83.18%, resulting in a gross profit margin of 17.87% in the first half, down 3.4% from the same period last year. Of this total, the gross profit margin in the second quarter was 16.73 percent, down 2.69 percentage points from the first quarter and 5.57 percentage points from the same period last year. Among them, the cost of prestressed steel was 741 million yuan, a sharp increase of 91.53% over the same period last year, mainly due to a large increase in the purchase price and sales volume of raw materials, and the average purchase price per ton of main raw materials rose nearly 45% compared with the same period last year. The cost of track plate decreased slightly compared with the same period last year, mainly due to the reduction of investment in the final stage of Jianping project this year, resulting in a decrease in cost.

The cost during the period increased by 39.42% compared with the same period last year. Among them, sales expenses increased by 43.73% over the same period last year, mainly due to a sharp increase in sales of prestressed steel products of the company, resulting in a 55.78% increase in transportation costs over the same period last year; financial expenses increased by 13.835 million yuan over the same period last year, mainly due to the appreciation of RMB against the US dollar; exchange losses increased by 6.92 million yuan, interest income decreased by 88%, and interest expenses for borrowing business increased by 756000 yuan. Management expenses decreased by 8.67% year-on-year, mainly due to a 99.63% year-on-year reduction in taxes and 36.4% year-on-year reduction in office expenses. The ability of cost control was enhanced, and the expense rate during the period decreased by 2.26 percentage points, of which the sales expense rate and management expense rate decreased by 0.99 and 3.67 percentage points respectively, compared with the same period last year.

The company's track plate business continues to advance steadily. The company's CRTSIII two-way pre-tensioned ballastless track slab has been widely used in Zhengzhou-Xuzhou high-speed railway and Beijing-Shenyang high-speed railway. The company has built track plate production plants in Duanyuan, Anhui and Jianping, Liaoning, respectively, supplying Zhengzhou-Xuzhou high-speed railway and Beijing-Shenyang high-speed railway. The production task of Liaoning Construction Plate Factory has been completed, and the acceptance of track plate products has been basically completed in the first half of the year. In addition, the company's business extends to subway traffic, and the first pilot section will be laid on Tianjin Metro Line 5, Line 6 and Urumqi Metro Line 1. The company is the core enterprise of the third generation track plate in Beijing, Tianjin and Hebei. During the reporting period, the track plate business continues to advance steadily and is optimistic about the future growth space. We estimate that the EPS from 2017 to 2019 will be 0.46,0.6,0.66 yuan respectively, and the corresponding PE will be 41x, 32x and 29x respectively, maintaining the buy rating.

Risk hint: infrastructure investment is lower than expected; raw material prices fluctuate less than expected.