What happened: today the company announced its mid-term 2014 results, compared with the same period last year, revenue in the first half of 2014 increased by 47.73% to 14.635 billion yuan, comprehensive gross profit margin fell 0.45% to 0.62%, and net profit belonging to shareholders of listed companies increased by 48.55% to 88.7819 million yuan. Net profit belonging to shareholders of listed companies decreased by 1.73% to 67.0213 million yuan, and earnings per share was 0.22 yuan. At the same time, the company released its profit forecast for the first three quarters, and the net profit attributed to shareholders of listed companies is expected to grow by 20% and 60% in the first three quarters of 2014.

Main points of investment:

The vigorous expansion of supply chain business in the resources industry increases the company's revenue growth, but the continuous decline of comprehensive gross profit margin and comprehensive gross profit shows the low profit characteristics of the company's main business. The proportion of the company's supply chain service revenue in the first half of 2014 increased from 99.92% in 2013 to 99.93% in the first half of 2014, but the low profit nature of the business coupled with rising factors such as labor costs and operating costs reduced the main gross profit margin from 0.61% in 2013 to 0.58% in the first half of 2014, dragging down the company's comprehensive gross margin by 0.04 percentage points to 0.62% and comprehensive gross profit by 13.84% to 90.97 million yuan.

Relying on the supply chain business to carry out foreign exchange business resulting in a substantial reduction in financial expenses and a substantial increase in fair value changes in profit and loss is an important factor for the company to achieve substantial growth in operating profit and net profit. The company relies on the supply chain to carry out foreign exchange business and obtain a package of income. In the first half of the year, the company realized interest income of 128 million yuan. After offsetting the current interest expenses, exchange losses and bank charges, the financial expenses were-28.5596 million yuan. Compared with-230000 yuan in the same period last year, the contribution to the net increment of operating profit was 40.87%. The profit and loss of fair value change realized 24.9 million yuan, contributing 35.94% to the net increment of the company's operating profit. In addition, the company's sales expense rate and management expense rate have maintained a slightly lower trend since 2013, indicating that the strengthening of the company's cost control ability has a positive impact on the company's operating profit growth. In the first half of 2014, the company's operating profit increased by 53% compared with the same period last year, and net profit increased by 48% over the same period last year.

The company has the investment theme of free trade zone. In order to further improve the supply chain operation network of the company's resources and energy industry, make use of the relevant policies, management, information, finance and other convenient conditions of the Shanghai Free Trade Zone to better cooperate with the company's related business development and improve the operational efficiency of the company's business. In the first half of the year, the company contributed 10 million yuan with its own funds, accounting for 100% of the registered capital. The relevant industrial and commercial formalities for setting up a subsidiary have been completed, and the registered capital has not yet been invested. The establishment of Shanghai Free Trade Zone subsidiary gives the company the theme of investment in the free trade zone.

Profit forecast and investment rating. We estimate that the company's earnings per share from 2014 to 2015 will be 0.42 yuan and 0.51 yuan respectively, corresponding to 35 and 25 times PE respectively. Although the profit of the main business of the company is low and the gross profit margin is declining, the expansion of the main business is obvious. It is expected that the foreign exchange business carried out by the supply chain business will support the stable growth of the company's performance, giving the company an "overweight" rating for the first time.

Investment risk. The income of foreign exchange business relying on supply chain business is highly uncertain.