The company achieved operating income of 3.53 billion yuan in the 2nd quarter, a decrease of 4% from the previous year and a net loss of 120 million yuan; in the first half of the year, it achieved operating income of 6.87 billion yuan, a decrease of 14% from the previous year, and a net loss of 195 million yuan. The loss level continued to expand, reaching the lower limit of the expected performance loss of 160 million to 200 million yuan. Positive: Eliminate stocks and go to battle lightly, and internal reforms strive to reverse losses throughout the year. The company's inventory of finished products at the end of June fell by 11% and 22%, respectively, compared to the beginning of the year and the same period last year; the company reformed the product development process and sales company incentive system, and strived to reverse losses throughout the year. The company participated in Ruifeng Optoelectronics and successfully entered the GEM market in July. After the IPO, Konka held 19.34% of the shares. At the end of June, the book value of this long-term equity investment was 48.3 million, and the current market value was 452 million yuan. The net operating cash inflow was 5.54 million yuan, an improvement over the same period last year. During the period, notes receivable, accounts receivable, and inventory decreased by 800 million, 300 million, and 400 million, respectively. Negative: 2Q revenue fell 4%, and revenue in the first half of the year decreased 14% year over year: 1) The number of domestic retail units in the color TV industry in the first half of the year increased, Konka's transformation to flat screen TVs lagged behind the industry, CRT business shrank rapidly, and color TV business revenue fell 16% in the first half of the year, falling behind peers; 2) Overseas demand was weak, and export revenue fell sharply by 29.5% in the first half of the year; 3) Mobile phone business revenue fell 33.8% in the first half of the year, mainly due to the impact of smartphone popularity on low-end phone sales. Profitability continued to decline, and 2Q losses expanded: 1) 2Q gross margin fell to an all-time low, down 2.1ppt year on year and 1.2ppt month-on-month, mainly due to the company's color TV and mobile phone product structure falling behind the industry, and the removal of 2Q color TV inventory. 2) The cost ratio increased. The sales and management expense ratio in the first half of the year increased by 2.3 ppt and 0.5 ppt year on year, mainly due to increased marketing investment and rising labor costs in response to market competition. Development trend: Losses increased in the second quarter. The company is actively carrying out internal reforms, speeding up the launch of new products, and improving sales and product structure, thereby improving operating efficiency and product gross profit margin, and reversing losses quarter by quarter. The development of other industries is in sequence: 1) In the middle of this year, Yingrui's LED chip furnace began trial production, but its contribution to the company's profit was limited; 2) The factory relocation in the first half of next year, and the original factory land is expected to be converted to commercial use in 2012 to develop commercial real estate. Valuation and recommendations: We generally keep our profit forecasts unchanged and only fine-tune the structure. Earnings per share for 2011-2013 are expected to be -0.04, 0.04, and $0.12 (YoY -163%, 203%, and 159%). Currently, the stock price corresponds to the 2011-2012 dynamic price-earnings ratio of -86x and 84x, respectively, and the net market ratio is 1x, maintaining a neutral rating. Currently, the market value of the company's A+B shares is only 3.7 billion. If the company's 3Q profitability reverses the trend clearly and the original factory land is successfully converted to commercial use, there is a chance that the stock price will rebound from the bottom.