Report Summary: CRT era leaders experienced poor performance. Konka's main business is color TVs, mobile phones, white batteries, etc. Among them, the color TV business accounts for more than 70% of revenue, and mobile phones and white TVs each account for about 10%. As an enterprise that switched from export to domestic sales, Konka gradually developed into one of the major domestic color TV brands along with the rapid growth in demand for color TVs in the CRT era. However, in the color TV technology transformation from CRT to flat screen TV, Konka's technology transformation lagged behind the market pace, causing the company's profit level to drop sharply. Since entering 2011, the company has once again reached a low point of performance. In the first three quarters, revenue grew negatively year on year, with a net loss of 156 million yuan. Corporate governance issues affected 2011 results. (1) The launch of new color TV products is slow. In the first three quarters of 2011, a total of 866 new products were launched in the color TV market. Konka launched 31 new products, accounting for only 3%. (2) The rapid penetration of smartphones has had an impact. According to Sano data, the share of smartphone sales rose from 29.21% in June 2010 to 49.90% in 2011/5, posing a huge challenge to domestic mobile phones, which are mainly mid-range and low-end products. Konka's smartphone products are not yet highly competitive, leading to a significant drop in sales revenue in the mobile phone business. (3) The slowdown in the growth rate of the refrigerator industry affects the company's profits. It gradually broke out of the trough and is expected to return to normal levels in 2012. (1) The next two quarters will be the peak sales season for color TV, and the company is expected to be profitable. In addition, smart TVs with online payment functions developed by the company and UnionPay will be launched on the market during New Year's Day. (2) In order to increase the motivation of dealers, the company plans to improve the difficulty of the assessment. By increasing incentives, the performance of each sales branch is stimulated and the company's profit level is raised. (3) In the refrigerator business, Konka will continue to invest in its production base in Anhui, which is expected to strengthen the product's position in the lower market while gradually moving closer to the second-tier brand camp. Investment advice. Faced with operational difficulties, the company is actively responding. We believe Konka will see a reversal in performance next year after suffering. Judging from the company's operations in the first three quarters of 2011, it also showed a positive trend. The company's revenue growth rates for 2011-2013 are expected to be -6%, 13%, and 12%, respectively, and EPS is -0.09 yuan, 0.19 yuan, and 0.22 yuan, respectively. The corresponding PE is 17 times (2012) and 14 times (2013). For the first time, the company was given an investment rating of -B to increase its holdings, with a target price of 4.5 yuan for 6 months. Risk warning: Smart TV volume falls short of expectations; the company's business improvements fall short of expectations.