From January to September 2010, the company achieved operating income of 967 million yuan, an increase of 8.7% over the same period last year; operating profit of 26.73 million yuan, an increase of 1.7% over the same period last year; and net profit belonging to the parent company was 21.37 million yuan, down 10.4% from the same period last year. Realize earnings per share of 0.13 yuan. The net profit in the third quarter was 8.28 million yuan, and the earnings per share in the third quarter was 0.05 yuan.

The increase in the price of the company's products pushes up the operating income. The company is a processing enterprise specializing in the production of steel wire and steel rope. During the reporting period, the price of the main raw materials and wire rod of the company rose sharply, of which the average price of wire rod in the first three quarters was 4148 yuan / ton, up 13.5% from the same period last year. Higher costs directly push up the price of the company's products, which in turn increases the company's operating income in the first three quarters. Although the price of the company's products in the third quarter was lower than that in the second quarter, operating income in the third quarter increased slightly by 2.5% from the previous quarter, which is expected to be due to the increase in the company's product sales.

Gross margin in the third quarter fell slightly by 0.6 percentage points from the previous quarter. From January to September 2010, the company's consolidated gross profit margin rose slightly to 14.8% in the first three quarters from a year earlier. On a quarterly basis, the gross margin of Q1-Q3 in 2010 was 14.0%, 15.4% and 14.8%, respectively. The company's quarterly gross profit margin fluctuated slightly, with a 0.6 percentage point drop in the third quarter compared with the previous quarter, mainly due to the decline in the company's product prices and relatively high wire rod inventory in the third quarter.

During the period of the company, the expense rate is still at a high level. The company's expense rate rose 1.1 percentage points to 11.7% during the first three quarters. On a quarterly basis, the expense rate of Q1-Q3 in 2010 was 11.1%, 12.3% and 11.9% respectively, and the expense rate decreased 0.4% month-on-month during the third quarter, but the expense rate during the company period was still at a high level. From a positive point of view, reducing the expense rate during the future period can become an important way for the company to increase its profits in the future. At the same time, due to the loss of national science and technology special subsidies in 2010, the company's non-operating income in the first three quarters decreased by 99.3% compared with the same period last year. During the period, the expense rate and non-operating income "one high and one low" finally reduced the company's net profit by 10.4% compared with the same period last year.

Profit forecasts and investment advice. It is estimated that the EPS from 2010 to 2012 is 0.20,0.30,0.36 yuan respectively. According to the closing price of 10.29 yuan on October 25, the corresponding dynamic price-to-earnings ratio is 51 times, 34 times and 28 times respectively, and we maintain a "neutral" investment rating on the company.

Risk tips: the risk of large fluctuations in raw material prices; the risk of high costs during the period.