Description of the incident: Recently, we conducted telephone research on the company, mainly communicating with the company's directors on issues such as the company's business conditions and convertible bonds to raise capital investment projects. Comment: 1. The recovery of the welding materials industry supports performance. The company is a leading enterprise in the domestic welding materials industry, with a domestic market share close to 18%. The company's products are widely used in aerospace, bridges, ships, construction and other national infrastructure construction and major special projects. The welding materials industry is closely related to the national economy and is strongly correlated with steel consumption. More than 50% of the world's steel production needs to be manufactured through welding processing. In the first half of 2009, the domestic economy continued to pick up, driven by national investment, and apparent steel consumption increased month by month, leading to a recovery in the welding materials industry. The company achieved earnings of 0.33 yuan per share in the first half of the year, exceeding market expectations. Currently, the domestic market is still the main market for the company's products. With the recovery of the domestic economy, the welding materials industry will continue to pick up, and the company's performance will be supported. 2. Product structure optimization boosts profits. The company's main products are electrodes and welding wires, which account for 69% and 31% of revenue, respectively. 1) In terms of electrodes, the company's main strategy is to adjust the product structure based on existing production capacity and increase the production of high value-added products. Currently, the company's electrode production capacity has reached 256,500 tons/year, of which the production capacity of special electrodes is 71,500 tons/year. In recent years, the company's electrode production capacity utilization rate has been around 90%, and production capacity has been fully released, which can basically meet market demand. And as the share of high-end products such as special electrodes increases, the overall gross margin of electrode products will continue to rise. 2) In terms of welding wire, the company's welding wire products are still mainly ordinary welding wire. Due to the intense competition in the ordinary welding wire market, the gross margin of the product has always been low. Currently, the company is actively developing high-value-added flux-cored wire business. It is expected that the expansion of the capacity and production of flux-cored welding wire will increase the room for growth in the gross margin of welding wire, thus achieving a win-win situation of increasing the company's revenue and profit. Optimizing the product structure and adding high-end products is a trend in the development of China's welding materials industry. The company has strong research capabilities and will benefit from industry upgrades and adjustments and boost profit margins. 3. Achieving production of flux-cored welding wire will form a new profit growth point. At the beginning of September 2009, the company issued 265 million yuan of convertible bonds to raise capital for an additional 40,000 tons of flux-cored welding wire technology transformation projects. Flux-cored welding wire is a new generation of high-tech welding materials. It concentrates the advantages of electrodes and solid welding wires, and market demand is increasing year by year. At the end of 2008, the company had already built a 10,000 ton flux-cored wire production line, and already realized some of the economic benefits in the first half of 2009. From January to June 2009, the overall gross margin of the company's welding wire products increased significantly over the same period last year. The main reason was the increase in the share of flux-cored welding wire sales. The company's flux-cored wire products are still in short supply, and production capacity is insufficient. This time, raising capital to increase flux-cored wire production capacity will improve the problem of insufficient production capacity and bring new profit growth points to the company. Currently, the company is constructing an additional 10,000 tons of flux-cored wire production line, which is expected to be completed by the end of 2009. At that time, the company's flux-cored wire production capacity will reach 20,000 tons/year. In terms of flux-cored wire production, the company's technical level is quite mature, and a 10,000 ton flux-cored wire production line can be built in about half a year. We expect that with the gradual construction of the company's projects, additional flux-cored wire production capacity will be completed in 2010-2011, and the company's performance will be released accordingly. 4. Profit forecast and rating. We expect the company's earnings per share for 2009-2011 to be 0.69 yuan, 0.85 yuan, and 1.08 yuan. Based on the closing price of 14.61 yuan on September 15, 2009, the corresponding dynamic price-earnings ratio is 21 times, 17 times, and 14 times. The company's stock price has been underestimated. Considering the company's good growth, we think it is reasonable to give a price-earnings ratio of 25-30 times. The corresponding stock price is 17-21 yuan. Maintain an investment rating of “excess holdings.” Furthermore, if the startup version of Sanying Welding Materials is listed, it will likely increase the valuation of the company's stock price and its attention, and become a stimulus factor for the company's stock price.