1H19's performance is consistent with the forecast.

The company announced 1H19 results: revenue was 300 million yuan, down 41% from the same period last year; net profit from return to mother was 2.92 million yuan, corresponding to profit per share; net profit after deducting non-return to mother was-5.57 million yuan, and loss was reduced by 18.11 million yuan from the same period last year. Non-recurrent profit and loss mainly came from government subsidies of 7.81 million yuan. The company's operating income in the single quarter of 2Q19 was 130 million yuan, down 53% from the same period last year and 24% from the previous month. The net profit of the company was a loss of 82000 yuan, down 101% from the previous year.

Comments: 1) 1H19's comprehensive gross margin increased by 3.9ppt to 14.5% compared with the same period last year. 2) the production and sales of niobium and tantalum main products decreased compared with the same period last year. 3) the cost decreased as a whole compared with the same period last year. The sales expenses of 1H19 Company decreased by 29% or 1.37 million yuan compared with the same period last year, mainly due to the decrease in sales and freight costs, and the management expenses decreased by 13% or 5.98 million yuan compared with the same period last year, mainly due to the decrease in depreciation and amortization after the purchase of assets, a decrease of 55% or 3.86 million yuan in R & D expenses and 20% or 2.96 million yuan in financial expenses compared with the same period last year, mainly due to the decrease in interest payments. 1H19's management expense rate and financial expense rate are + 4.2ppt and 1.0ppt to 12.9% and 3.8%, respectively. 4) the net income of 1H19 investment is 11.64 million yuan, which is higher than-1.23 million yuan of 1H18, and there is no fair value change in profit or loss. 5) the effective tax rate of 1H19 is 9.3%, an increase of 9.6ppt over the same period last year. 6) the cash flow of 1H19 operating activities is from + 3.6x to 140 million yuan compared with the same period last year.

Trend of development

The impact of asset replacement is beginning to bear fruit. After the completion of the asset swap in November last year, the company focused on the main business of niobium and tantalum. The purchase of 1H2019 assets improved the company's investment income and reduced the company's losses. In the medium to long term, we believe that R & D and expansion of the field of non-ferrous materials processing is expected to enhance the added value of products.

Profit forecast and valuation

Due to changes in the company's asset purchase and output and price assumptions, we have lowered our profit forecast for 2019 / 2020 by 69% / 67% to 0.02 yuan / 0.02 yuan.

The company's current share price corresponds to 2.9 times / 2.9 times price-to-book ratio in 2019 / 2020. Maintain the neutral rating and 8.0 yuan list price, corresponding to 3.1 times 2019 market-to-book ratio and 3.1 times 2020 market-to-book ratio, which has 7.8% upside space compared with the current stock price.

Risk

Sales of the products fell short of expectations, and prices fell more than expected.