Haiyue Co., Ltd. announced its financial report for the first half of 2014. In the first half of 2014, Haiyue Co., Ltd. achieved operating income of 1,595 billion yuan, an increase of 30.86% over the previous year; realized net profit attributable to shareholders of listed companies of 41.53 million yuan, an increase of 32.87% over the previous year; and achieved an EPS of 0.11 yuan. The net cash flow per share of the company's operating activities in the first half of the year was -1.02 yuan, the net assets per share attributable to shareholders of listed companies were 3.19 yuan, and the weighted average return on net assets was 3.53%. Reviews: 1. Sales of refined oil products are the company's main source of profit. In the first half of 2014, the company's revenue increased by 30.86% year on year, net profit increased 32.87% year on year, and the company's revenue and profit both maintained rapid growth. In the first half of the year, the company's main profit still came from the refined oil sales business, which accounted for 66.43% of the company's gross profit. Revenue and profit from the refined oil sales business increased. In the first half of 2014, the company's refined oil sales business achieved revenue of 1,471 billion yuan, an increase of 34.10% over the previous year; achieved gross profit of 20.87 million yuan, an increase of 62.98% over the previous year. The refined oil sales business accounted for 92.62% and 66.43% of the company's total revenue and gross profit, respectively, which is the main source of the company's gross revenue. The gross margin of the company's refined oil sales business increased by 0.25 percentage points to 1.42%, and the company's refined oil sales business is expected to continue to grow at a high level throughout the year. Increased return on investment. 1H2014, Zhejiang Tianyue Venture Capital Co., Ltd., a wholly-owned subsidiary of the company, disposed of marketable financial assets, leading to an increase in investment income. In the first half of the year, the company achieved a total investment income of 81.32 million yuan, an increase of 80.50% over the previous year. 2. The Ningbo project is progressing smoothly and is expected to contribute to performance during the year. Methyl ethyl ketone and isooctane devices produce qualified products. The main installations and scale of the first phase of the “1.38 million tons/year propane and mixed carbon four utilization project” under construction by Ningbo Haiyue New Materials Co., Ltd., a holding subsidiary of Haiyue Co., Ltd., are: propane dehydrogenation unit (600,000 tons/year), gas fraction isooctane unit (600,000 tons/year), and methylethanone unit (40,000 tons/year). According to the company announcement, the methyl ethyl ketone unit of the first phase of the project produced qualified products on June 19, 2014; the isooctane unit produced qualified products on July 3. It only took about one month for the above two sets of installations to complete the entire process and produce qualified products. The company's investment in the above two chemical projects has achieved obvious results, and the company has successfully completed the transformation. We believe that the company's methyl ethyl ketone and isooctane devices are expected to be produced in a short period of time. The PDH project was put into trial operation. According to the company's announcement on July 24, the company's propane dehydrogenation project has completed the filing, inspection and approval of relevant departments such as fire protection, safety supervision, environmental protection, etc., and has begun commissioning. Both the company's PDH project and the Tianjin Bohua project use Lummus's processes. Currently, the Tianjin Bohua PDH project has entered a stable production stage, and we believe that the company's PDH project will also be successfully completed and started. The product price spread remained high. Since August 1, China has incorporated value-added tax invoices for refined oil products into the anti-counterfeiting tax control system in Chinese characters. This move will hit oil blending manufacturers, which in turn will affect carbon four deep processing enterprises such as alkylation and aromatization. Competition in the carbon four deep processing industry will intensify, and the overall price of post-carbon four resources, such as ether, the raw material for carbon four deep processing, is expected to drop. As a listed company, Haiyue Co., Ltd. believes that its overall competitive advantage is outstanding, and it is expected to win in the face of increased competition in the isooctane industry. The methyl ethyl ketone and isooctane plant of the company's Ningbo project will use part of the procurement of domestic liquefied gas as raw materials, and the decline in raw material prices is expected to increase the company's profitability. The price differences for methylethone - liquefied gas and alkylated oil - liquefied gas reached 3990 and 1,559 yuan/ton respectively in August, and remained at a high level. At present, the methyl ethyl ketone and isooctane plant of the company's Ningbo project has produced qualified products, and the PDH unit is also expected to be successfully started in the short term. Currently, the product price spread is still at a high level, and liquefied gas has not yet entered the peak consumption season. Prices are expected to remain low in the short term. Lower raw material prices will reduce the company's production costs in the early stages of project commissioning and production. We believe that the company's above three devices are progressing smoothly and are expected to contribute to performance during the year. 3. Profit forecasts and investment ratings. With the completion and commissioning of the company's methylethanone, isooctane, and PDH projects, the company will transform from a trading enterprise to a production enterprise. With the gradual increase in the operating rate of the project, the company's revenue and profit will grow steadily, and it is expected to become a petrochemical enterprise with revenue reaching 10 billion dollars in the future. We expect the company's EPS from 2014 to 2016 to be 0.42, 0.98, and 1.68 yuan respectively. According to the 2015 EPS and 20 times PE, we gave the company a six-month target price of 19.60 yuan to maintain the “increase in holdings” investment rating. 4. Risk warning. Project commissioning progress falls short of expectations; prices of products and raw materials have fluctuated greatly; risk of enterprise transformation; progress in upgrading the quality of domestic refined oil products.