Report Summary: The results for the first three quarters continued to decline sharply year on year: the company achieved operating income of 1,347.18 million yuan, up 8.2% year on year during the reporting period, and the company achieved net profit attributable to the parent company of 37.88 million yuan, equivalent to EPS 0.06 yuan, down 75.21% year on year. What is particularly noteworthy is that after deducting non-recurring profit and loss, the company realized net profit attributable to the parent company of only 25.6 million yuan, equivalent to 0.04 yuan EPS, a year-on-year decrease of up to 97%. Affected by the economic situation at home and abroad, the prices of the company's finished products have dropped sharply. At the same time, the company's operating profit has been severely curtailed due to increased management costs such as sales and labor. The gross margin of the main business during the reporting period was only 10.28%, down 10.18 percentage points from 20.46% in last year's three-quarter report, resulting in a year-on-year decrease of 116.24 million yuan in gross profit during the reporting period. The main reason why the performance fell short of expectations was that the cost ratio for the period increased significantly: during the reporting period, the average price of the company's nylon DTY and FDY fell by 16.57% and 18.8% respectively compared to the average price for the whole of 2011; during the same period, the average price of nylon chips and caprolactam fell by 21.5% and 23.3%, respectively, compared to the average price for the whole year of 2011. In fact, the decline in the price of nylon raw materials exceeds the decline in the price of nylon yarn, yet the gross margin for the first three quarters was only 10.28%, down 6.22 percentage points from the gross profit margin of 16.5% for the whole year of 2011. The main reason is the continuous increase in labor costs and electricity prices. The period fee rate for the first three quarters of 2012 was 8.07%, while the period fee rate for the first three quarters of 2011 was 5.99%, up 2.06 percentage points from the previous year, and the impact on net profit was obvious. Fourth-quarter results or low levels: We judge that the price of nylon in the fourth quarter can only hover at a low level. We lowered the average prices of nylon DTY and FDY for the whole year to 0.08,000 yuan/ton and 0.1,400 yuan/ton without tax, respectively, to 24,900 yuan/ton and 22,900 yuan/ton. However, as multiple sets of caprolactam plants are put into production in China one after another, the company's raw material costs are expected to trend decline, and the price difference between the company's nylon wire and raw materials is expected to rise. We expect that the fourth quarter may be a quarter where the company's performance bottomed out. Downgrade the investment rating to Neutral-A: The company expects that due to the sluggish economic situation at home and abroad and other uncertainties, the cumulative net profit from the beginning of the year to the end of the next reporting period is expected to drop 40%-60% from the same period last year. The net profit attributable to the parent company for the full year of last year was 138.7 million yuan. According to the company's estimates, the performance range for the full year of 2012 was between 55.5 million yuan and 83.22 million yuan. Considering that the company's performance in the first three quarters continued to fall below our previous expectations, we lowered the company's net profit in 2012, 2013, and 2104 to 71.4 million yuan Yuan, 77.1 million yuan, and 121.7 million yuan, equivalent to EPS of 0.11 yuan, 0.12 yuan, and 0.19 yuan, respectively. We believe that the company's reasonable target price for 6 months is 4 yuan. The PE corresponding to 2012, 2013, and 2014 is 36 times, 33 times, and 21 times, respectively, and the investment rating was lowered to neutral-A. Risk warning: nylon prices have declined sharply