Performance review The company achieved operating income of 2,146 million yuan in the first quarter, a year-on-year decrease of 3.72%; net profit attributable to shareholders of the parent company was 114 million yuan, a year-on-year decrease of 28.80%, and EPS of 0.14 yuan. The company's performance fell short of expectations, mainly because revenue did not increase after product order prices fell, and at the same time the cost ratio increased. Business analysis product demand situation: Investment in the domestic steel and mining industries increased by 15.8% and 5.0% respectively in the first quarter, showing a moderate growth trend. Railway investment maintained a high level of prosperity, and railway truck production reached 17,700 units in the first quarter, an increase of 117.3% over the previous year. At the end of the first quarter, the company's advance accounts were 742 million yuan, a decrease of 112 million yuan from the beginning of the year. This was due not only to the factors of the company's product structure adjustment (excavators, train wheels, etc., an increase in sales share in sales, but its sales model was different from that of lifting and forging equipment, and the deposit ratio collected was lower), as well as increased market competition. Currently, the company and heavy machinery companies, including Yichong and Shuang, have all stepped up market competition in the field of metallurgical equipment, including forging equipment and export products, and the prices of related products have also declined. Gross margin remained stable: The consolidated gross margin for the first quarter was 18.87%, down 0.3 percentage points from the same period in 10 years, but higher than the 15.40% level in 10 years. Gross margin remained at a high level in the first quarter, which should be related to the higher share of revenue in sales of products with higher profit margins such as excavators and train wheels. Expense ratio increase: The company's sales expense ratio for the first quarter was 3.55% and the management expense ratio was 4.82%, both of which were 0.6 percentage points higher than the same period in 10 years. The company's financial expense ratio for the first quarter was 0.74%, which is basically the same as the same period in '10. The increase in the cost ratio is the main reason for the large decline in the company's net profit in the first quarter, the company's net profit margin was 5.32%, down 1.9 percentage points from the previous year. Accounts receivable and cash flow: Accounts receivable at the end of the first quarter reached 6,167 million yuan, an increase of 69 million yuan over the beginning of the year. The current trend of continuous decline in the company's receivables turnover ratio has not been reversed. Due to the increase in accounts receivable, the corresponding price decline and the increase in bad debt preparations, the company's asset impairment losses reached 84 million yuan in the first quarter, an increase of 20% over the previous year. The net cash outflow from the company's operating activities in the first quarter was 212 million yuan, mainly due to an increase in accounts receivable and a decrease in advance receipts. Strengthening collection of accounts receivable and proper risk management are important for improving the company's cash flow situation. Profit forecast and investment recommendations Since the first-quarter results were lower than expected, we lowered our profit forecast for the company. Considering that the company's on-hand orders are still full and the company has strengthened production management and marketing sales, we believe that the company's net profit can still grow throughout the year. It is estimated that the company's 2011-2013 operating income is 10,817, 12,294 and 13,526 million yuan, and net profit is 721,905 and 1,052 million yuan, respectively, up 10.64%, 25.54%, and 16.24% from the previous year; EPS is 0.89, 1.12 and 1.30 yuan. The current stock price corresponds to 24.84 times PE in '11, maintaining the “buy” rating.