1. Incident Overview On October 8, 2012, it was announced that the company plans to privately issue 50 million shares at an issue price of 14.55 yuan/share. The acquirer Lian Weifei plans to subscribe for all shares in cash. Prior to this issuance, Lian Weifei held 25 million shares of the company, with a shareholding ratio of 10.82%, making him the second largest shareholder. After this private offering, the total number of shares of the company will increase to 28.09654 million shares, of which Lian Weifei holds 75 million shares of the company, with a shareholding ratio of 26.69%, making him the company's largest shareholder. Shares subscribed by Lian Weifei cannot be transferred for 36 months from the end of this private offering. 2. Analysis and judgment shows confidence in the increase of 14.55 yuan to the majority shareholders, and may indicate that the company intends to raise a total of about 7275 million yuan in capital this time to develop the mineral chain. On the one hand, such large-scale fixed increases and a three-year hiatus without transfer shows the majority shareholders' confidence in the company's development prospects. If we consider the opportunity cost of capital and entrust credit, capital revenue can obtain a profit of about 100 million yuan, equivalent to EPS of 0.36 yuan (assuming the increase is completed); based on this, we believe that the majority shareholders are confident that they will strive to achieve a steady increase in the company's profits through mineral underwriting. On the other hand, the scale of financing of more than 700 million dollars may indicate the company's intention to develop the mining chain in the future. According to the company's interim report, the company gradually transferred its main business to mining (trade). With titanium concentrate trading, net profit in the first half of the year reached 4,0551 million yuan and EPS 0.03 yuan, successfully reversing losses. The company has realized the importance of mineral trade in improving operations, and will definitely support it in the future. According to the annual contract sales volume of 500,000 tons, it is estimated that the working capital of 1-2 billion yuan can basically meet normal underwriting operations. There is still a balance of 500 to 600 million dollars after deducting the necessary cash flow from the capital raised, which may indicate “the company's intention to use the majority shareholders' mineral resources to further enter the mineral chain.” Titanium, zirconium, tantalum and niobium may become the company's future development direction. Lian Weifei, the majority shareholder, holds 100% of Hongqiao (Africa) Mining Co., Ltd. and 48% controls Madagascar Mainland Mining Co., Ltd.; the two companies are engaged in the production and processing of tantalum-niobium ore and titanium-zirconium ore, respectively. We think these are the most likely directions if the company gets involved in the mining chain. Currently, zirconium, tantalum, and niobium are not involved in the company's underwriting contract. If you get involved, profits will rise to the next level. For example, the price of zircon sand is about 16,000 yuan/t, which is 8-10 times that of titanium; the associated ratio is about “10-15:1”. If zircon ore is also sold by the company in the future, it is expected to contribute 0.37-0.6 yuan to EPS; while the price of metallurgical grade tantalum powder is as high as 2.5 million yuan/t. Titanium concentrate underwriting has formed a safe margin of performance. The 500,000 ton EPS contract is expected to reach 0.71 yuan. According to the announcement, the plan for the second half of the year is to minimize the gap between the actual quantity of titanium ore to be contracted and the target volume of 500,000 tons. If the shipment volume is not reached, compensation of 1 million yuan per 10,000 tons will be compensated for the shortage to ensure that the company will definitely make a profit. The mining area was affected by seasonal factors such as typhoons in the first half of the year, and the volume of underwritten shipments to China fell short of expectations. We conservatively estimate that the freight volume in the second half of the year will be over 100,000 tons, and the optimistic estimate is 30-400,000 tons. According to the interim report, the net profit of a ton of titanium ore is about 320 yuan (there are price concessions during the market development period), then the 2012 EPS is conservatively estimated to be about 0.18 yuan, and the optimistic estimate is that EPS is about 0.51 yuan. If 500,000 tons of titanium ore are underwritten in 2013 and the net profit reaches 400 yuan/ton, EPS is expected to reach 0.71 yuan (assuming the increase is completed). 3. Profit Forecast and Investment Proposals The 5-year underwriting contract can still help evaluate the company from a relative valuation perspective. It is estimated that the bottom line for relatively safe EPS performance in 2013 is about 0.71 yuan (maintaining 500,000 tons of titanium ore sales). Give a “Highly Recommended” rating. 4. Risk warning: 1. The contract was forced to be cancelled; 2. Weak downstream demand caused titanium prices to fall