Main points of investment:

In the first three quarters, the company realized operating income of 430 million yuan, an increase of 37.85% over the same period last year, an operating profit of 15.748 million yuan, and a net profit of 26.548 million yuan belonging to the parent company, an increase of 41.25% and 61.57% respectively over the same period last year, realizing basic earnings per share of 0.0698 yuan. After deducting non-recurrent profit and loss, the basic earnings per share was 0.0312 yuan, a decrease of 92.17% over the same period last year.

The growth rate of revenue is faster, but the comprehensive gross profit margin is declining: in the first three quarters, the company achieved operating income of about 430 million yuan, an increase of 37.85% over the same period last year, with a rapid growth rate of income, but the comprehensive gross profit margin was only 17.25%, down about 4 percentage points from the same period last year. We believe that the growth of the company's revenue mainly comes from the tungsten and molybdenum products business with low gross margin, which is difficult to increase profits and lowers the company's comprehensive gross profit margin.

The main profitability needs to be improved, and government subsidies and investment income constitute the main sources of profits: the company's operating profit margin in the first three quarters is only 3.66%, which is basically the same as that in the same period last year, and the operating profit margin in the third quarter is 9.81%, an increase of about 2 percentage points over the same period last year. The company's profits mainly come from the 7 million yuan of scientific and technological innovation support funds from the government subsidized subsidiary Bailey Electric, about 6 million yuan from the disposal of non-current assets, and about 2.7 million yuan from the investment in transactional financial assets.

Superconducting current limiter is the biggest attraction of the company in the future: at the end of July this year, the company launched a non-public stock offering plan to raise 1 billion yuan to invest in smart grid-related equipment and rare metal deep processing projects. we think that the biggest attraction of the company in the future will be the superconducting current limiter project raised this time. Superconducting current limiter is the key equipment of smart grid, which can improve the transient stability of smart grid. We expect the domestic market space to be 1500-230 billion yuan. Due to the high superconducting technical barriers, Beijing Yundian is the only one in China to master the relevant technology, and the market is in a monopoly pattern in the short term. The company will enjoy this huge cake alone, and there is a lot of room for imagination.

GIS, VW60, electronic transformers and deep processing of rare metals promote business upgrading and enhance profitability: at present, the company's electrical equipment business is concentrated in the medium and low voltage field, the market is in perfect competition, the product profit margin is low, and the tungsten and molybdenum products business does not increase profits. Smart grid related equipment projects and rare metal deep processing projects will upgrade the company's business structure, and the market extends from medium and low voltage to high voltage. The product extends from low gross margin to high gross margin, which fundamentally improves the profitability of the company.

Without considering the additional issuance projects, the EPS from 2010 to 2012 was 0.20,0.25,0.27 yuan. Considering the profitability improvement brought by the additional issuance projects, the company was given a "buy" rating.