Key investment event description Jiugang Hongxing released its 2016 mid-year report. During the reporting period, the company achieved operating income of 18.430 billion yuan, a year-on-year decrease of 45.45%; operating costs of 15.514 billion yuan, a year-on-year decrease of 52.20%; realized net profit attributable to the parent company was 227 million yuan, a loss of 1,534 billion yuan in the same period last year; and achieved an EPS of 0.04 yuan. Among them, the company achieved operating income of 9,927 billion yuan in the second quarter, a year-on-year decrease of 32.77%, a year-on-year growth rate of -55.30% in the first quarter; operating costs of 7.946 billion yuan, a year-on-year decrease of 45.98%, and a year-on-year growth rate of -57.35% in the first quarter; net profit attributable to the parent company in the second quarter was 494 million yuan, compared with -1,168 billion yuan for the same period last year; and achieved an EPS of 0.08 yuan in the second quarter and -0.04 yuan in the first quarter. Incident review The gross margin increased markedly, turning a loss into a profit in the first half of the year: the company's products were mainly wire and bars. Driven by the accelerated growth rate of real estate and infrastructure investment, national steel prices rebounded sharply in the first half of the year, while ore price performance during the same period was relatively weak. Gross margin increased as a result, combined with a sharp reduction in sales expenses and management expenses in the first half of the year, and successfully turned a loss into a profit: 1) Steel prices fell 5.92% year on year in the first half of 2016. Steel prices in the first half of 2016 fell 5.92% year on year. Prices of rebar and wire in the Lanzhou region were superior to the rest of the country, rising by 0.11% and falling 0.11% in the first half of the year. 2%, while ore prices during the same period The decline was 14.97%. Under the weak pattern of strong steel mines, the company's wire and bar margins increased sharply by 36.38 and 41.00 percentage points respectively; 2) The company's sales expenses and management expenses were drastically reduced, further increasing current profit by 675 million yuan, of which sales expenses decreased by 332 million yuan year-on-year, mainly due to the decline in product sales and measures such as the company's active pursuit of preferential railway policies, which affected the reduction in transportation expenses, while management expenses decreased by 343 million yuan year-on-year, mainly due to the fact that the company included product repair costs in accordance with regulations in the current period. The market picked up, and the results for the second quarter increased month on month: rebar and wire prices in Lanzhou rose 14.86% and 13.17% year on year respectively in the second quarter. The recovery in market conditions led to a sharp increase of 1,662 billion yuan in profit for the second quarter, achieving net profit attributable to the parent company of 494 million yuan; also benefiting from improved market conditions, the second quarter performance also improved significantly month-on-month. It is expected that the “Belt and Road” will increase the company's performance: although the company's performance has rebounded, the continuous improvement in performance will still depend on the continued improvement of the industry as a whole. However, as the “Belt and Road” plan progresses, the company's location advantage along the Silk Road may gradually become prominent, and the accelerated improvement in performance is worth looking forward to. The company's 2016 and 2017 EPS are expected to be 0.06 yuan and 0.06 yuan respectively, maintaining the “increase in holdings” rating.