Incidents: In 2011, Konka achieved sales revenue of 16.2 billion yuan, a year-on-year decline of 5%; realized net profit of 250 million yuan, a decrease of 70% over the previous year; and fully diluted EPS was 0.02 yuan. The company's profit distribution plan for 2011 is to distribute 0.1 yuan in cash for every 10 shares. In the first quarter of 2012, Konka achieved sales revenue of 3.5 billion yuan, an increase of 4% over the previous year; realized net profit of 10.37 million yuan, an increase of 113% over the previous year; and fully diluted EPS was 0.0086 yuan. After a rapid decline, revenue growth is gradually recovering. In 2011, Konka achieved sales revenue of 16.2 billion yuan, a year-on-year decline of 5%. On the one hand, the company is slow to launch new color TV products. In 2011, a total of 1,066 new products were launched in the color television market, and Konka launched 37 new products, accounting for only 3%. On the other hand, in the face of the rapid penetration of smartphones, the smartphone products launched by the company are not yet highly competitive. After the company realigned the operating structure of the color TV system in mid-2011, the revenue growth rate began to gradually recover, achieving a 4% increase in the first quarter of 2012, indicating that the company is gradually returning to a normal growth path after the adjustments. Profitability has increased, and the expense ratio has also risen. In the fourth quarter, the company achieved a gross profit margin of 20%, up 5 percentage points from the previous month, mainly due to an increase in the gross margin of the color television business. In 2011, panel prices fell all the way down to historic lows, and in December 2011, panel prices fell by about 20% compared to the same period last year. At the same time, due to intense market competition, promotional investment in the color TV business increased in 2011, and the sales expense ratio increased accordingly. At the same time, the management cost rate continues to rise due to factors such as the increase in R&D expenses and the rise in managers' salaries. Tax policy changes affected EPS by about 0.04 yuan. Due to adjustments in the scope of additional taxpayers for urban construction tax and education expenses, the additional taxes on urban construction taxes and education fees levied on companies from December 1, 2010 have increased, and in 2011, companies have been levied on local education fee surcharges with a tax rate of 2%. Thus, in 2011, the company's sales tax and surcharges increased by 607% year-on-year, of which about 45 million yuan came from changes in tax policy, which affected EPS by about 0.04 yuan. Investment advice. Since the fourth quarter of 2011, the company's business conditions have been improving. Considering that the color TV industry has already entered the price competition stage ahead of schedule in the first quarter, it is expected that Konka's corresponding mid-range and low-end products will be greatly impacted. Based on this, we lowered the company's EPS from 2012 to 2014 to 0.16 yuan, 0.17 yuan, and 0.18 yuan, and the corresponding PE by 21 times, 20 times, and 19 times, respectively. Maintain an investment rating of B-B for increased holdings, with a target price of 4.50 yuan for 6 months. Risk warning: Color TV business adjustment blocked; smartphone sales fell short of expectations; domestic color TV market price war.