Performance review The company achieved operating income of 8,591 million yuan in 10 years and net profit attributable to shareholders of the parent company of 790 million yuan, a year-on-year decrease of 6.13% and a decrease of 33.58%, respectively, and EPS of 0.121 yuan. In the first quarter, the company achieved operating income of 1326 million yuan and net profit attributable to shareholders of the parent company of 22 million yuan, a year-on-year decrease of 8.34% and 76.65%, respectively, and EPS of 0.003 yuan. The company's performance fell short of expectations due to no increase in sales revenue and a significant decline in the profit margin of metallurgical equipment. Business analysis, output value and orders: The company's 10-year output value was 12 billion yuan, the same as in 2009. The number of new goods contracts signed by the company for the full year of '10 was 16.45 billion yuan, an increase of 73.6% over the previous year. Meanwhile, in 2011, the company expects to achieve a commodity output value of 13.5 billion yuan, and the equipment utilization rate will continue to be high. Orders for metallurgical equipment have increased greatly, but profitability has not been easy to recover: in 10 years, domestic steel investment has shown restorative growth. The company has mainly increased market development in two areas (one is general engineering contracting, and the other is a moderate shift to private enterprises, non-ferrous metallurgy, deep processing of steel products, etc.), and achieved good results. A new order of 9.76 billion yuan was signed for the full year of 10 years, more than five times that of 2009. Due to increased competition in the market, the order price of complete metallurgical equipment has dropped sharply, while the price of raw materials has risen, seriously squeezing the product's profit margin space. The gross margin of the company's metallurgical equipment fell by 13 percentage points in 10 years. Due to changes in order prices and costs, it is difficult for future profit margins to recover. The heavy pressure vessel business will maintain steady growth: in 10 years, this business achieved sales revenue of 1.93 billion yuan, slightly lower than in 2009, while gross margin increased slightly by 1 percentage point. Due to stable demand in the petrochemical industry and the relatively good investment situation in coal chemicals, etc., new orders for the heavy pressure vessel business reached 2.17 billion yuan in 10 years, nearly double that of 2009. Revenue from nuclear energy equipment has increased, and new orders have declined: in 10 years, nuclear energy equipment became one of the company's main products, with sales revenue reaching 1.41 billion yuan, accounting for 16.5%. Due to a decrease in the number of newly approved domestic nuclear power projects, the number of new orders signed for the nuclear energy equipment business in 2010 was 2.32 billion yuan, a decrease of 1.42 billion yuan from 2009. After the Fukushima nuclear crisis broke out in Japan, the State Council suspended approval of nuclear power projects, which means that the company's nuclear power business will focus on absorbing existing orders over the next two years. Gross margin and cost indicators: The company's 10-year gross margin was 26.04%, showing a high and low situation, falling to 21.37% in the fourth quarter, while remaining at 22.13% in the first quarter of '11. In 10 years, the company's management expense ratio increased by 2.0 percentage points, and the financial expense ratio decreased by 2.2 percentage points. Coupled with a slight decrease in the sales expenses ratio, the overall expense ratio declined. Considering that the decline in financial expenses is mainly due to the reduction in interest expenses realized from loan repayment after the funds raised are in place, since the end of this year, after the central bank has raised interest rates many times, future interest expenses may rebound somewhat. The cash situation is tight: Due to rising accounts receivable and inventory, the company's monetary capital continued to decline, which was 2,734 million yuan at the end of the first quarter of '11. In the full year of '10 and the first quarter of '11, the company's net cash outflows from operating activities reached 1,707 million yuan and 976 million yuan respectively, and the cash flow situation needs to be improved. Profit forecast and investment recommendations Since the gross margin of the metallurgical equipment business has declined too fast, we have lowered our profit forecast. The company's 2011-2013 operating income is estimated to be 10,330, 11,1981 and 13,412 million yuan, and net profit of 840, 919 and 1,022 million yuan, respectively; EPS is 0.13, 0.14 and 0.16 yuan, respectively. Currently, the company's stock price is 40 times PE in '11, maintaining its “hold” rating. The risk indicates the risk of large fluctuations in raw materials and energy prices. The company's main raw materials are pig iron, scrap steel and various alloys, and the main energy sources are electricity, coal, etc.; raw materials and energy account for 80-85% of the company's costs. The company has strong transfer pricing capabilities for its products, but due to the long production cycle, if the prices of raw materials and energy rise too fast, the profit level of existing orders will be suppressed. Policy risks in energy development. Following the outbreak of the Fukushima nuclear crisis in Japan, the State Council held an executive meeting and decided to quickly prepare a nuclear safety plan, adjust and improve the medium- and long-term plans for nuclear power development, and suspend approval of nuclear power projects, including those carrying out preliminary work, until the nuclear safety plan is approved. There is great uncertainty about the extent of adjustments to the nuclear power development plan and the timing for restarting project approval.