Net profit in 2010 declined sharply year on year. The company lost 77 million in Q2011 and achieved net profit of 84 million yuan (YoY -44%) in 2010, corresponding to earnings of 0.07 yuan per share, in line with the performance report; it achieved operating income of 17.1 billion yuan (YoY 29%), in line with our expectations and reports. At the same time, the company also disclosed that it recorded a loss of 77 million yuan in the first quarter of 2011, which is in line with anticipated losses. Operating income fell 22% year on year, significantly lower than expected. Positive: In 2010, revenue increased by 29%, 1) Color TV business revenue increased by 31% year on year. During this period, the company actively launched new models, maintained its brand image and position in the industry, and made full use of household appliances to the countryside and still expand sales; 2) Overseas sales revenue increased 93% year on year, the product structure improved, and the share of flat screen TVs increased to 60%. Expenses were well controlled during 2010, with sales expenses and management expense ratios falling by 0.8 ppt and 0.2 ppt, respectively, and cost efficiency improved. 4Q10 invested 22.5 million US dollars equivalent in RMB to participate in Yingrui Optoelectronics (LED chips), with a shareholding ratio of 36%. Negative: Gross margin continues to be low, showing no industry-wide recovery. Gross margin fell 3.2ppt year on year in 2010, mainly due to inventory removal and intense competition in the color TV industry in 2010; there was still no significant improvement in gross margin in the first quarter of 2011, and LED's share was lower than the industry average. In the first quarter of 2011, operating income fell sharply by 22% year on year, and both export and domestic sales declined year on year. Development trend: Based on losses in the first quarter, the company will actively make internal adjustments, speed up the launch of new products, improve product structure and sales scale, improve operating efficiency and product gross profit margin, and reduce losses or turn losses into profits quarter by quarter. It is expected that it will still be in a state of loss throughout 2011. The development of other industries is in sequence: 1) In the middle of this year, Yingrui LED chip furnaces began trial production, but their contribution to the company's profit was limited; 2) The plant was relocated in the second half of the year, and commercial real estate development is expected in 2012. Valuation and recommendations: The profit forecasts for 2011-12 were lowered by 126% and 73%. The company is expected to be in a state of loss and marginal profit this year and next two years, with earnings per share of -0.03, 0.05, and 0.12 yuan in 2011-13. The current stock price corresponding to the 2012-2013 dynamic price-earnings ratio is 91x and 41x, respectively. Considering the fierce competition in the color TV industry, it is difficult for the company to achieve significant profit improvements in the short term, so it is downgraded to “neutral.” Risk: LCD panel prices have rebounded sharply, and intense industry competition has put pressure on revenue growth.