Media reports on the incident: Recently, the National Tobacco Monopoly Administration issued a notice that cigarette products with a tar content of 11 mg/stick or more produced from January 1, 2013 cannot be sold in the domestic market. Commentary: The National Tobacco Monopoly Administration originally planned to reduce the maximum tar content of domestic cigarettes by 2 mg/stick over a four-year period (from 12 mg/stick in 2011 to 10 mg/stick in 2015); the latest notice currently issued prohibits the sale of cigarettes containing more than 11 mg/stick of tar from January 2013, and the “downfocusing” plan has been strictly implemented; at the same time, we believe that the “downfocusing” plan for cigarettes is a general trend, and the regulatory authorities are likely to reduce the tar content of cigarettes every 1-2 years. At the 2010 National Tobacco Work Conference, the National Tobacco Monopoly Administration proposed that starting from January 1, 2011, the amount of standard tar for domestic production and sale should not exceed 12 mg/stick, and no more than 10 mg/stick from January 1, 2015. The pressure to reduce focus on domestic high-tar cigarettes is increasing, and high-tar cigarettes will increase the use of filter reduction technology: by the end of 2011, the average tar content of cigarettes in the country was 11.5 mg/stick, and the high tar content of most high-tar cigarettes was 11 to 12 mg/stick; at the same time, domestic cigarettes are mainly flue-cured cigarettes, and tobacco has a high tar content. The current policy will promote cigarette companies to speed up the adoption of filter reduction technology on high-tar cigarettes. High permeability paper is a key material for filter focus reduction technology, and “focus reduction” will effectively accelerate the increase in demand for high permeability paper: (1) The regulatory authorities urge manufacturers to actively develop new types of low tar cigarettes to encourage the development of the low tar cigarette market. The rapid growth in sales of low tar cigarettes starting in 2011 will continue, which in turn will drive the rapid growth in demand for high permeability paper; (2) High tar cigarettes are expected to use more filter reduction technology, and the penetration rate of the high permeability paper market will further increase. In 2011, the national sales volume of low tar cigarettes was 3.3 million large boxes, up 365.7% year on year; in January-February 2012, sales of low tar cigarettes reached 1.128,900 boxes, an increase of 213.70% year on year. The company's sharp release of production capacity coincided with the explosion of industry demand, and fully enjoyed industry dividends: Driven by national policies, demand in the high-permeability paper market exploded at an accelerated pace; the company's production capacity will expand to 16,000 tons in 2013. None of the competitors in the industry have plans to expand production during the same period, so the company enjoys exclusive industry dividends. The company produced and sold 7,000 tons of high-permeability paper in 2011, and production capacity will expand to 10,000 tons and 16,000 tons respectively in 2012 and 2013; the company's competitor Zhongyan Modi (Jiangmen) has a production capacity of 6,000 tons, and Zhejiang Wanbang has a high-permeability paper production capacity of 1,000 tons. Investment proposal n predicts Hengfeng Paper's 2012-2014 EPS: 0.555 yuan, 0.748 yuan, and 0.88 yuan (considering all convertible bonds converted to EPS: 0.433 yuan, 0.584 yuan, and 0.686 yuan). We believe that the company should be valued higher than that of ordinary paper companies. The reasons are as follows: the company has obvious advantages in expanding production capacity, and there is a high degree of certainty that it will enjoy the benefits of the high-permeability paper industry driven by the launch of the low-tar cigarette market. Unlike the strong cycle characteristics of other paper companies, the downstream of the company is the tobacco industry where sales and profits are very stable and can cross the cycle, and international pulp supply and demand began to enter a cycle of slight oversupply in 2011. Pulp prices will be stable in the next 2 years, and the probability of increase is very low; these factors make Hengfeng Paper's operation less cyclical in the next 2 years. We gave the company a target price of 10.50-10.82 yuan, corresponding to 19x12PE and 14x13PE (25x12PE and 18x13PE after dilution), and it is recommended to buy.