The 2016 results were in line with expectations Liyuan Refining announced 2016 results: operating income of 2.56 billion yuan, up 11.4% year on year; net profit attributable to parent company was 550 million yuan, up 15% year on year, corresponding to earnings of 0.45 yuan per share. Net profit after deduction of 490 million yuan was 490 million yuan, an increase of 6% over the previous year. 4Q's net profit for the single quarter was 130 million yuan, up 14% year on year and down 5% month on month. The main reason for the year-on-year increase in the company's performance in 2016 was the increase in production and sales volume and the optimization of the product structure. Comment: 1) Production and sales increased year over year. In 2016, the company's aluminum profile production/sales volume was 117,400 tons/117 million tons respectively, an increase of 10.5%/10.8% over the same period last year. 2) The comprehensive gross margin increased by 1.4ppt to 37.2% year on year, of which the gross margin of decoration and construction materials products increased by 2.5ppt to 35.7%. 3) At the end of 2016, the number of projects under construction increased by 58% from the beginning of the year to ~6.15 billion yuan, mainly due to the increase in the progress of new projects in Shenyang. 4) Financial expenses increased by 41% year-on-year to 260 million yuan, mainly due to increased loans due to advancing the construction of the Shenyang project. The financial expense ratio increased by 2.1ppt to 10.1% year on year. The transformation and upgrading of development trends helps long-term growth. Of the capital raised by the company's 3 billion yuan non-public offering, 2.7 billion yuan will be used to invest in rail vehicle manufacturing and aluminum profile deep processing projects. After completion of the project, the company will have an annual production capacity of 1,000 passenger rail vehicles (400 EMUs, 400 aluminum alloy city rail subways, 200 stainless steel city rail subways), 1,000 aluminum alloy trucks, and 60,000 tons of aluminum deep-processing products. The company actively promotes rail vehicle manufacturing and aluminum profile deep processing projects. After the project is put into operation, it will lay the foundation for the transformation and upgrading of the company's products and help long-term growth. The profit forecast remains unchanged at the 2017 earnings per share forecast of $0.57. Introducing the 2018 earnings per share forecast of $0.65. Valuation and recommendations Currently, the company's stock price corresponds to 19.5x 2018e P/E. The company's product upgrades and project advancement will provide a catalyst for valuation. We maintained our recommended rating and raised the target price by 11.6% to 16.3 yuan, which is 27.9% higher than the current stock price. The new target price corresponds to 25.0x 2018e P/E. Risk requirements fell short of expectations; project progress fell short of expectations.