Event description:

The EPS in 2011 is 0.781 yuan, which is basically in line with our expectations.

During the reporting period in 2011, the company achieved operating income of 1.645 billion yuan, an increase of 24.18% over the same period last year; operating profit of 360 million yuan, an increase of 122.21% over the same period last year; net profit of shareholders belonging to listed companies was 269 million yuan, an increase of 102.42% over the same period last year; comprehensive gross profit margin was 24.79%, up 5.19% over the same period last year; EPS was 0.781 yuan, basically in line with our expectations.

Main points of investment:

The substantial increase in the company's performance mainly comes from the cement business. In 2011, the company's cement sales and selling prices rose simultaneously, and the cement business achieved sales revenue of 727 million yuan, an increase of 42.51% over the same period last year, and the cement business gross profit margin was 32.69%, up 12.83% over the same period last year, which made a great contribution to the substantial growth of the company's overall performance. In addition, Zhejiang Jinhua Southern Pinnacle cement and Southern cement, which are owned by the company, also performed well in 2011, contributing 116 million yuan to the company's investment income. The complementary business of cement and medicine is the main bright spot of the company.

After asset divestiture and integration in recent years, the company has highlighted the cement and pharmaceutical business. At present, cement and pharmaceutical business constitute the main source of income and profit of the company, and they obviously complement each other and support each other, which promotes the company's comprehensive gross profit margin to be increased year by year.

In the future, the company's cement business will mainly develop steadily. In the cement business, the company currently has two production lines, with a total cement production capacity of about 3.2 million tons, including the Hubei Daye production line that has been put into production with a production capacity of 2 million tons, and a Yunnan Pu'er production line under construction with a production capacity of 1.2 million tons. at present, the mainframe equipment of the line has been basically installed and can be put into production on time and contribute profits in the first half of 2012. In addition, the company also relies on equity investment to achieve indirect production capacity expansion by participating in cement companies such as Zhejiang Nanfang Jianfeng, Guangxi Huying and Nanfang cement. In the future, in the development of cement business, the company will continue to adhere to the tone of steady development, and will focus on doing a good job in Yunnan Pu'er market in the short term. Pharmaceutical business will expand into new areas.

In 2011, the company's pharmaceutical business income was 765 million yuan, an increase of 17.29% over the same period last year, and the gross profit margin was 19.5%, down 1.17% from the same period last year. In terms of industrial medicine, in 2011, the company strengthened the sales assessment of six major profit-making products, such as cefoxime hydrochloride, amlodipine aspartate and paroxetine, ensuring the volume of key profit-making varieties. as a result, the revenue of the pharmaceutical business has maintained a relatively rapid growth. The company's Jinxi base is progressing smoothly and is expected to be completed by the end of 2013. after completion, the company's scale advantage in chemicals will significantly increase. In the future, the company will not only continue to expand the market development of profit-making products, but also develop new chemical drugs and expand to the market of health products.

Valuation and investment advice.

We expect the company's EPS to be 0.95,1.17 and 1.34 yuan respectively from 2012 to 2014, maintaining a "buy" rating with a target price of 11 yuan. Focus on matters of concern.

Stock price catalyst: accelerated investment in fixed assets; the company successfully entered the field of health care. Risk tips: a sharp decline in fixed asset investment; antibiotic management has a greater impact on the company's sales; drug prices are down.