Company announcement: The company has issued 2.65 million convertible bonds, raising an amount of 265 million yuan, and plans to invest in an additional 40,000 tons of flux-cored welding wire technology transformation projects. The construction period is one year. Interest rates on bonds are 1.00% in the first year, 1.20% in the second year, 1.40% in the third year, 1.60% in the fourth year, and 1.80% in the fifth year. You can choose to convert convertible bonds 6 months after the issuance of convertible bonds. The conversion price is 14.55 yuan/share. Key investment points: Performance in the first half of the year exceeded expectations, benefiting from a sharp increase in fixed asset investment and infrastructure construction. The company achieved revenue and net profit of 1.01 billion yuan and 40 million yuan respectively in the first half of 2009, down 11.8% and 7.6% from the previous year, and achieved an EPS of 0.33 yuan, exceeding our expectations (our original forecast was around 0.25 yuan). The sharp increase in fixed asset investment and infrastructure construction under the 4 trillion dollar investment led to a marked recovery in the company's comprehensive gross margin and net profit margin level for welding materials. The gross margin rebounded to a high of 15.2% in the middle of last year, up 2.6 percentage points from last year's full year. The net profit margin increased to 4%, up 1.5 percentage points from the end of last year. With the deepening of infrastructure construction in the second half of the year, the company's welding materials profitability is expected to further improve. The convertible bond project reduced financial costs, and the new project contributed revenue in 2010. The company announced the issuance of convertible bonds, which are expected to raise 265 million yuan in capital, which can reduce the company's financial expenses by nearly 13 million yuan per year. The capital raised was used to invest in the 40,000-ton flux-cored wire project, which is expected to be gradually completed and put into operation over the next year. With the current production capacity of 10,000 tons of flux-cored welding wire (production of 50,000 tons in the first half of the year), the company is expected to form a production capacity of 50,000 tons of flux-cored welding wire by the fourth quarter of 2010, which will contribute 550 million yuan in revenue and gross profit of over 90 million yuan, which will become a new growth point for the company's performance over the next two years. The conversion price is 14.55 yuan/share, which supports the current stock price. The company's convertible bonds can choose to convert shares after six months. The conversion price is 14.55 yuan. Currently, the stock price of 13.11 yuan is lower than the conversion price. In an effort to achieve a share conversion, the company will definitely increase its attention to the secondary market and strive to improve its own performance. We believe that under the current valuation level and performance growth expectations, the stock price will rise above the conversion price, and there is a high possibility that debt will be converted to exercise rights. Production of various types of welding materials exceeded 180,000 tons in the first half of the year, and is expected to reach 350,000 tons throughout the year, exceeding our estimate of 310,000 tons. Demand for welding materials in 2009 is expected to exceed our expectations and reach 4 million tons (the original forecast was 3.53 million tons), an increase of 11% over the previous year. Currently, the company's production capacity is 360,000 tons, which is basically at full capacity. Strong downstream demand and the company's product structure adjustments, the company's profitability in the second half of the year is expected to exceed that of the first half of the year. The profit forecast was raised, and the valuation was only 18 times, maintaining the “increase in holdings” rating. We raised the EPS for 09-11 to 0.68, 0.90, and 1.09 yuan (the original forecast was 0.55, 0.75, and 0.92 yuan). The current stock price corresponding to PE is 18 times and 15 times, which is at the low end of the midstream manufacturing valuation. We have conservatively given the company 25 times PE in 2009, with a target price of 17 yuan, maintaining the “increase in holdings” rating.