The main reason for the year-on-year increase in the net profit of Hongda Co., Ltd. in 2006 was the rise in zinc prices and the increase in production. Higher zinc prices have led to increased profits. In 2006, as zinc stocks declined further and domestic demand for zinc continued to grow, zinc prices remained at a high level. The average price of zinc in March on the London Metal Exchange reached 3,197 US dollars/ton, up 136% from the same period last year. With the rise in zinc prices at home and abroad, the zinc price achieved by Hongda Co., Ltd. was also higher than in the same period last year. Meanwhile, the company's zinc production in 2006 was 166,000 tons, an increase of 107% over the same period last year. It is worth noting that the profit of the chemical business has declined sharply. Although the prices of the company's phosphorus chemical products have stabilized somewhat after a sharp drop, they are still at a low level, while the supply of phosphorus raw materials is tight and prices remain high, resulting in poor capacity utilization in the company's chemical business and a decline in profit margins. The gross margin fell from more than 30% in 2005 to only 10%. This trend is difficult to change in the short term. The main reason for our slightly lower profit forecast is that the company announced that its holding subsidiary, Sichuan Hongda Nonferrous Metals Co., Ltd., will enjoy preferential tax policies for western development, and will reduce corporate income tax levies at a 15% corporate tax rate. Maintaining a “neutral” investment rating We expect that with the declining trend of zinc inventories slowing down and the global zinc supply and demand gap starting to narrow, zinc prices will fluctuate at historic highs and decline in 2007. At the same time, since the average price of zinc throughout the year is expected to be higher than in 2006, the company's profit will continue to grow. Currently, the company maintains a “neutral” investment rating based on a price-earnings ratio of 9.6 times in 2007, which is 8 times higher than the valuation of comparable international companies. At the same time, considering that the company's chemical business will continue to be in a declining cycle, the company maintains a “neutral” investment rating.