Events:

According to the company's mid-2016 report, the company's operating income in the first half of 2016 was 540 million yuan, an increase of 6.29 percent over the same period last year. The net profit belonging to shareholders of listed companies was 29 million yuan, turning losses into profits.

Viewpoint:

The company's profitability continues to pick up and turn losses into profits. The company's revenue in the first half of 2016 increased by 6.29% over the same period last year, of which Q1 increased by 3.71% compared with the same period last year. Q2 increased by 8.28% compared with the same period last year. The company's net profit in the first half of 2016 was 35 million yuan, including 2 million yuan for Q1 and about 33 million yuan for Q2. This shows that the company's profitability is improving, and has greater sustainability, and there is a great probability of turning losses into profits throughout the year.

Control costs, adjust prices, there is growth. Through the centralized bidding and procurement management of coal, packaging and automobile transportation, the company has effectively reduced the cost of warehousing and logistics; effectively saved energy and reduced consumption; the production costs of major products such as barium carbonate, electrolytic manganese dioxide and barium sulfate have been reduced; management expenses have also dropped significantly by 33% compared with the same period last year. In addition, the company appropriately raised the sales prices of its main products, such as barium carbonate and strontium nitrate, and made efforts at both ends of the cost and price at the same time, effectively enhancing its market competitiveness and profitability.

Rapid release of high purity manganese sulfate. The company's high-purity manganese sulfate products are mainly used as cathode materials for lithium-ion batteries, and the continuous R & D investment ensures the technical and brand advantages of the company's manganese products in the market. In recent years, the development momentum of lithium-ion battery cathode materials, especially ternary cathode materials is good, which directly leads to the growth of the demand for manganese products of the company. In the first half of 2016, the company's manganese products contributed 153 million yuan in revenue, accounting for nearly 1/3 of the company's total revenue, and its gross profit margin increased by 6.2 percentage points to 17.6% compared with 11.4% in the same period last year. Sales of high-purity manganese sulfate increased by more than 130% over the same period last year, achieving sales of 4482 tons.

State-owned assets holding enterprises. The controlling shareholder of the company is Qingdao Hongxing Chemical Group Co., Ltd., which is a large state-owned enterprise directly under Qingdao. Under the background of the reform of state-owned enterprises, the relevant national reform is expected to be worthy of long-term attention.

Conclusion:

We forecast that from 2016 to 2018, the revenue of the company will be 1.215 billion yuan, 1.283 billion yuan and 1.342 billion yuan respectively, the net profit will be 69 million yuan, 76 million yuan and 91 million yuan respectively, and the EPS will be 0.23,0.25,0.30 yuan respectively, and the corresponding PE will be 61.38,55.55 and 46.81 respectively. Give the company a "recommended" rating.