Incident: On the evening of October 25, Yatai Group released its 2013 three-quarter report. In the first three quarters of 2013, the company achieved operating income of 10.296 billion yuan, up 24.28% from the same period in 2012; net profit attributable to shareholders of listed companies was 254 million yuan, down 35.71% from the same period in 2012; and basic earnings per share of 0.13 yuan. Comment: There is still no improvement in the third quarter results. The company's quarterly revenue for the third quarter was 4,074 billion yuan, up 19.98% year on year. The good year-on-year increase in revenue was mainly due to changes in the scope of mergers and the increase in subsidiaries, but the company's profit situation was not optimistic. In terms of gross margin, the company's gross margin for the first three quarters was 29.07%, down 1.99 percentage points from the previous year, of which the gross margin for the third quarter was 28.25%. In addition, the company's expenses ratio for the first three quarters increased by 1.05 percentage points year on year to 24.75%, of which the financial expenses rate was as high as 9.77 percent, up 0.63 percentage points year on year, mainly due to the increase in interest expenses caused by the company's increase in long-term loans and the non-public offering of targeted financing instruments. In addition, the company's accounts receivable increased sharply by 179.02% year on year to 2,057 billion yuan, mainly because the company increased credit sales to major customers in order to increase sales volume. The main business continues to be sluggish, and investment income contributes to the main profit. Judging from the company's cement sector, the average price of high-standard cement fell by about 28 yuan/ton year on year due to sluggish downstream demand. Affected by this, the company's cement sector revenue has declined to varying degrees. However, after entering the fourth quarter, the Northeast region was affected by the colder weather, and construction declined markedly, so the company's cement sector was not optimistic. In the coal sector, due to the sharp decline in coal prices, the company's coal is basically in a state of loss. Meanwhile, the company's investment income increased by 33.93% year on year to 340 million yuan, contributing greatly to the company's profit. This was mainly due to the sharp increase in earnings from Northeast Securities and the increase in the Bank of Jilin's equity law accounting income. Among them, Northeast Securities achieved net profit of 445 million yuan in the first three quarters of this year, which has greatly exceeded the level of 151 million yuan for the full year of 2012. The leading cement position in Northeast China has been consolidated. At the beginning of this year, the company completed the acquisition of 80% of the shares of Liaoning Zhongbei Cement, 80% of the shares of Liaoning Jiaotong Cement, and 100% of the shares of Heiniugou Quarrying Company. Currently, the company's share of clinker production capacity in Liaoning has increased to 12.6%, and its regional influence has further expanded. Under the strategic guidance of the “whole cement industry chain”, the company has formed an industrial chain dominated by “clinker cement, aggregate machine sand, commercial concrete, and cement components”, and is a leading cement enterprise with an absolute advantage in the region. Furthermore, through integration within the company, the cement sector has formed a vertical industrial chain with the upstream coal sector and the downstream real estate sector, further enhancing the company's profitability. Furthermore, the company signed a cooperation agreement with Rasien in 2012, and the North Korean market is expected to gradually open up. Profit forecast and rating: Affected by sluggish downstream demand, the gross margin of the company's main business declined significantly. We lowered the company's earnings per share from 2013 to 2015 to 0.31 yuan (-19.31%), 0.38 yuan (-18.18%), and 0.48 yuan (-18.43%). Considering the company's leading position in the Northeast region and greater performance elasticity, we maintained our “increased holdings” rating. Risk factors: cement prices have fallen sharply in Northeast China; coal prices have fallen sharply; real estate investment has declined sharply due to deep real estate regulation.