Revenue growth from the main business fell short of expectations throughout the year. Since Xiamen Gong bought Xiamen Gong Mie last year, the annual report was published on a consolidated basis, and no breakdown of product revenue was announced at the same time. In 2011, the company's total construction machinery sales revenue was 8.564 billion yuan, up 6.5% year on year, far lower than expected; the gross profit margin was 20.79%. Due to the increase in the share of excavators, the decline in gross margin was not significant. According to data from the Construction Machinery Trade Network, in 2011, Xiagong's loader sales increased by about 10% year on year; excavator sales increased 50% year on year, leading the industry. We estimate that in 2011, the average price of Xiagong excavators was below 500,000, and the average price of loaders was less than 200,000, mainly light, small, medium and low end. Facing the western market, the subsidiary's profit situation was better than expected. The main business revenue of Xiagong Machinery (Jiaozuo) Co., Ltd. was 1,646 billion yuan, with a main business profit of 240 million yuan, gross profit margin of 14%, and net profit of 140 million yuan, accounting for 24.52% of the company's total net profit. Due to the low cost ratio of the new company, the net profit margin of Xiagong (Jiaozuo) was better than the company's overall level. The decline in the industry and the credit crunch increased the company's operating costs, leading to a decline in profits. It is mainly reflected in several aspects: due to falling demand in the second half of 2011 and increased competition, the company adjusted its credit sales policy moderately according to changes in market supply and demand in the construction machinery industry, leading to an increase in installment sales accounts receivable of 3.288 billion yuan at the end of 2011, an increase of 60%; at the same time, after-sales and three-package service fees in sales expenses increased to 400 million yuan, an increase of 25%; due to the decline in accounts receivable turnover, the company is also in a period of expansion of new products. As a result, short-term loans increased by 434 million yuan for the purchase and construction of fixed assets. Financial expenses were 150 million, an increase of 2.93 times over the previous year. Reasonable control of inventory: At the end of 2011, Xiagong's inventory of 3.3 billion yuan increased slightly from the beginning of the year. Inventory products were about 1.6 billion yuan, which is equivalent to 1-2 months' sales scale, which is basically reasonable. Due to the continuous increase in domestic agents, there are currently dozens of products in six categories, with more than 150 agents and more than 300 sales outlets. Each sales outlet needs to release a certain number of products (usually 5-10 units; the majority are dozens), so the increase in the company's inventory is basically reasonable. The stock holdings of Societe Generale Securities were reduced in the fourth quarter to avoid losses. In the fourth quarter, Xiagong's gross margin fell to its lowest level since 2006, with a gross profit margin of 10.7% and an operating profit margin of 0.9%. The company reduced its holdings of Societe Generale Securities by 9.35 million shares in the fourth quarter, confirming investment income of 100 million yuan; continued to reduce its holdings in the first quarter, receiving investment income of 65.7 million yuan; currently holding 306.96 million shares of Societe Generale Securities shares. The company will focus on the annual theme of “inspiring teams and lean management” to achieve operating income of 13.5 billion yuan, costs and expenses of about 12.7 billion yuan, and profit target of 800 million yuan. We judge that the fourth quarter of last year was the industry's low. Demand has already picked up after the Spring Festival, and the first quarter results are expected to break out of the trough. The company is in a period of development, and there is still a need for financing. According to the company's business plan, the additional capital requirement is about 5.6 billion yuan, including working capital of 3.8 billion yuan; the capital comes from bank financing, own capital, and capital raised, of which about 4.1 billion yuan is being raised from debt financing such as bank loans, and about 1.5 billion yuan is being sought for equity financing. As of February 24, 2012, Xiamen Engineering Co., Ltd. raised about 250 million yuan in targeted additional capital to major shareholders. The company increases investment in technology research and development and transformation to achieve product upgrading. The hydraulic excavator was fully upgraded to the D series and a new 40-ton product was successfully developed, forming a full range of products from the 4T-40T; the loader was fully upgraded to the III model; at the same time, new products such as telescopic forklifts, next-generation skid-steer loaders, miniature hydrostatic loaders, and milling machines were launched. The development of XGR150 and XGR120 rotary drilling rigs has been completed; ten basic studies on new technologies, new processes and applied technologies have been carried out, and re-certified as high-tech enterprises. The first quarter will break out of a slump in performance and raise the rating to “Prudent Recommendation B”. We judged that the 2012 CPI was manageable, monetary policy was relatively relaxed, government investment resumed, and the profits of Xiamen Industrial Construction are expected to break out of the trough in the first quarter. We forecast the 2012-2014 EPS to be 0.83, 0.93, and 1.06 yuan, with a compound growth rate of about 15%. Currently, the valuation is low, and there has been a slight improvement in policy and fundamentals, and the short-term rating has been raised to “Prudent Recommendation B”. Risk factor analysis: Product competitiveness is average, and risk resistance is poor.