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News / bulletin. Rizhao Port released the 2019 mid-term report that the company achieved operating income of 2.523 billion yuan, down 1. 56% from the same period last year. 56%, realized home net profit of 369 million yuan, an increase of 3.86% over the same period last year, deducted non-return net profit of 331 million yuan, a decrease of 5.87% over the same period last year, realized basic earnings per share of 0.12 yuan, and the weighted average ROE was 3.23%, a decrease of 0.05% over the same period last year. About 10% lower than expected. The lower-than-expected performance was mainly due to a decline in iron ore throughput.

The total throughput increased slightly by 2.71%, the foreign trade throughput decreased, and the domestic trade volume increased greatly. In the first half of the year, the company completed a cumulative cargo throughput of 125 million tons, a slight increase of 2.71% over the same period last year, of which the foreign trade throughput decreased slightly by 0.60% to 99.42 million tons affected by imported ore and grain, while the domestic trade throughput increased by 18.03% to 25.57 million tons. According to the types of goods, metal ores were affected by the origin to complete 69.66 million tons, down 8.43% from the same period last year, while the throughput of coal and products was 23.04 million tons, an increase of 11.92% over the same period last year. Grain was affected by the decline in feed demand such as soybean meal, and the throughput decreased by 6.05% to 5.85 million tons. The rest of the goods were relatively robust, with wood, non-metallic ores, steel and cement up 6.54%, 470.47%, 12.30% and 55.84% respectively over the same period last year.

Affected by the origin, the throughput of metal ores decreased by 8.43%. In the first half of the year, affected by the Vale SA mine accident and mine closure, iron ore imports decreased significantly. According to the statistics of the General Administration of Customs, the import of 19H1 iron ore and its concentrate was 499 million tons, down 5.96 percent from the same period last year, and the national port inventory also dropped from 143 million tons at the beginning of the year to 116 million tons at the end of June, a decrease of 19 percent, a decrease of 26 percent compared with the same period last year. In this environment, the metal ore throughput of Rizhao Port in the first half of the year was 69.66 million tons, down 8.43 percent from the same period last year, bringing a major reduction in revenue; at the same time, inventory decreased by 16.6 percent from 14.39 million tons at the beginning of the year to 12 million tons at the end of June, a decrease of 36.7 percent compared with the same period last year. However, in the first half of the year, the national iron and steel industry grew steadily, and the national crude steel output in the first half of the year was 492 million tons, an increase of 9.9% over the same period last year. Looking forward to the second half of the year, under the demand of sustained growth in steel production, with the recovery of overseas iron ore production, the port iron ore is expected to enter the replenishment cycle in the second half of the year, and the port iron ore throughput is expected to pick up.

Downgrade earnings forecast and maintain "buy" rating. Taking into account the impact of iron ore producing area on the company's business volume, we re-calculated the company's performance and lowered our profit forecast. It is estimated that the 2019-2021 net profit will be 746 million yuan, 899 million yuan and 1.043 billion yuan respectively (originally predicted to be 810 million yuan, 1.111 billion yuan and 1.471 billion yuan), and the corresponding share price PE will be 12 times, 10 times and 9 times respectively, which will continue to grow in the next 3-5 years. At the same time, the current PB is only 0.79 times, at the bottom of the valuation, maintaining a "buy" rating.

Risk hint: Port integration is not conducive to the development of the company, iron ore replenishment inventory is not as expected.