Profit acceleration and upward momentum is abundant and continuous. Hengfeng Paper is entering a period of rapid profit growth. The growth is driven by falling costs and product restructuring. In terms of cost, we expect that pulp prices are entering a three-year downward channel, and a 1% drop in pulp prices will increase annual profit by 3.4%; in terms of products, low-coke cigarettes have doubled sales over the past year, leading to strong demand for high-permeability molding paper. The company is in an oligopoly position in this field. Each increase in sales of this product by 1,000 tons will increase annual profit by 2.7%. The restructuring also includes the company's expansion into specialty paper fields other than cigarettes through thin-sheet technology, which is expected to accelerate revenue growth. Pulp prices have entered the expected three-year decline channel, and cigarette paper prices have been rigid. The decline in pulp prices over the past year was mainly due to weak demand, while supply-led pulp prices are expected to fall from the second half of this year to the end of 2014. During this period, global pulp production capacity will increase by more than 10 million tons, more than double the expected demand, and the imbalance between supply and demand will intensify. Since the new production capacity mainly comes from Russia and South America, which have the lowest cost in the world, there is a clear downward trend in pulp prices, and the magnitude is expected to exceed 10%. Profiteering cigarettes has determined the strong bargaining power of cigar-type specialty paper. Both logic and empirical evidence suggest that lower costs have led to an increase in the company's profitability. Reduced cigarette focus has triggered strong demand for high-permeability molded paper. Under policy impetus, the tar content of domestic cigarettes has declined year by year in the past 30 years. The 2010 Tobacco Conference further clarified the extent of focus reduction and required key cigarette brands to speed up production of low-core cigarettes, leading to a doubling of sales of low-coke cigarettes since 2011. At present, its share of about 13% of total sales indicates that there is still a lot of room for development, so the prospects for high-permeability molded paper, which is already in strong demand, are still promising. There are only three domestic manufacturers of this product, and Hengfeng Paper's production capacity is over 50% and is still expanding production, reaching 2/3 share by the end of the year. The risk suggests that the relationship between supply and demand for wood pulp does not meet our expectations. In particular, there has been a major shift in global economic growth for the better; market demand for high-permeability molded paper or the company's sales volume of this product are lower than our expectations. The company's reasonable valuation is 8.72 yuan/share. Maintaining the “recommended” rating, the company's EPS is expected to be 0.44/0.71/0.81 yuan from 2012 to 2014. Under the assumption that all convertible bonds will be converted next year, the EPS will be 0.44/0.55/0.63 yuan, and the three-year net profit compound growth rate is 29%. Among them, next year will be a year of high performance growth. The reasonable value of the company measured by various methods is 8.72 yuan/share, maintaining the company's “recommended” rating.