Quarterly report exceeded expectations, EPS0.24-0.26 yuan in the first quarter. The company's pre-growth announcement predicts that the company's net profit in the first quarter will increase by 80% RMB100% compared with the same period last year, and is expected to achieve a net profit of 2837-31.52 million yuan and EPS0.24-0.26 yuan, exceeding our original forecast of 0.20-0.21 yuan. The company's welding products have continued a high boom since 2009, with strong demand for downstream high-speed rail, nuclear power, infrastructure, equipment manufacturing, and so on. We expect the company's comprehensive gross profit margin to rise by about 1.6% to 16.6% in the first quarter. The company's net profit margin is expected to rise from 3.9% to 5.2%. Under the background of strong downstream demand and overall bullish steel prices, the company's comprehensive gross profit margin is expected to continue to rise steadily.

The output in the first quarter exceeds 100000 tons, and the annual output exceeds 400000 tons is a high probability event. In 2009, the company achieved an output of 250000 tons of welding rods, 100000 tons of welding wire (including 10,000 tons of flux-cored wire) and 10,000 tons of flux, totaling 360000 tons. The company plans to achieve an output of 400000 tons of welding materials in 2010, an increase of 11% over the same period last year. The company announced on March 12 that 10,000 tons of flux-cored wire was successfully put into production. Coupled with the 10,000-ton production capacity previously formed, the company has a production capacity of 20,000 tons of flux-cored wire by the end of the first quarter. We expect the company to form a production capacity of 30,000 tons of flux-cored wire by the end of 2010, with an output of 20,000 tons (including the previous 10,000 tons), and an increase of 10,000 tons of submerged arc welding wire and 20,000 tons of other welding wire. We expect that the company's output in 2010 will exceed the company's planned 400000 tons is a high probability event.

Raise the 2010 EPS to 1 yuan, the valuation is on the low side, raise the target price to 25 yuan, and maintain the "overweight" rating. In view of the fact that the company's performance exceeded expectations, we raised the company's 10-11 years to EPS1 yuan and 1.17 yuan (originally predicted to be 0.85 and 1.01 yuan), corresponding to 20.5 and 17.5 times PE in 10 and 11 years, which is still at a low valuation level, and is still expected to achieve steady growth in the next two years. Coupled with the company's global competitive advantage in the field of nuclear welding materials, we believe that the company's comprehensive growth space in the future is still broad, raising the target price by 25 yuan, corresponding to 25 times PE in 2010, it is recommended that investors actively increase their holdings.