From January to March 2012, the company achieved operating income of 2,080 billion yuan, a year-on-year decrease of 13.29%; operating profit of 16.64 million yuan, a year-on-year decrease of 64.46%; net profit attributable to owners of the parent company of 25.11 million yuan, a year-on-year decrease of 39.71%; and achieved basic earnings per share of 0.05 yuan. The year-on-year decline in operating income is still marginally profitable. The company's revenue in 2011 reached the highest level in history, and the parent company Shenji Group also ranked first in the world's machine tool industry in sales revenue for the first time. However, due to the decline in industry sentiment, the company's revenue has declined continuously since the third quarter of last year. Revenue for the first quarter of this year was 2,080 billion yuan, a year-on-year decrease of 13.29%, and a decrease of 0.6% month-on-month. The comprehensive gross profit margin was 23.27%, up 2.38 percentage points from the previous year; the cost ratio for the period was 21.36%, up 3.65 percentage points from the previous year. The profitability of the company's main business has improved, but it is still in a marginal state of profit. Redefine the private plan, and raise funds to ease financial pressure. In April 2012, the company terminated the non-public offering plan formulated in 2010 and re-formulated a new private offering plan. The new plan proposes to issue no more than 220 million non-public shares to specific targets at a price of not less than 734 yuan/share. Of these, Shenji Group will subscribe for no more than 10% of the issued shares. The capital raised was invested in major CNC machine tool production base construction projects of 230 million yuan; bank loan repayment projects of 630 million yuan; CNC lathe and vertical and horizontal machining center technological transformation and production expansion projects of 900 million yuan; technological transformation and production expansion projects of CNC machine tool core functional components, and 50 million yuan of enterprise informatization transformation projects, totaling 2.16 billion yuan. Some companies will raise their own funds to cover the shortfall. The company's current balance ratio is as high as 87.10%, and financial expenses are high, eroding the company's profits. Successful financing will help ease the company's financial pressure and reduce financial costs. Fund-raising projects enhance profitability. One of the company's main fund-raising projects this time, the construction of a major CNC machine tool production base, has a total investment of 900 million yuan. Construction began in 2008. The construction period is 4 years, and the construction progress of the project has reached 93% by the end of 2011. The planned capital raised this time is 230 million yuan mainly for the subsequent construction of major CNC machine tool production bases. After the project is completed, the level of the company's major CNC machine tool products will reach or approach the advanced level of similar international products. It is estimated to achieve sales revenue of 3,597 billion yuan and total profit of 498 million yuan. In addition to two other production expansion projects, it is estimated that sales revenue will be increased by 6.397 billion yuan, and total profit will be increased by 834 million yuan, and the company's technical level and profitability will be greatly improved. The growth rate of the machine tool industry has declined, and structural adjustments have brought new room for development. China is the world's largest consumer market for machine tools, and it also ranks first in machine tool production and sales. Since the second half of 2011, due to macroeconomic fluctuations and falling downstream demand, the monthly production of machine tools has continued to decline, and the growth rate has declined markedly. From January to February 2012, the production of gold cutting machine tools was 111,000 units, down 11.90% year on year; the output of CNC machine tools was 23,000 units, down 20.70% year on year. In the short term, the industry is in a slump. However, we believe that growth is expected to resume in the second half of the year, and in the long run, the market will grow steadily, the transformation and upgrading of downstream enterprises will drive the upgrading of machine tool product structures, and medium- and high-end CNC machine tools will face great opportunities for development. The company's product structure continues to be adjusted, and it will be upgraded within three years, and market competitiveness and profitability are expected to improve. Profit forecast and investment rating: We expect the company's EPS for 2012-2014 to be 0.26 yuan, 0.40 yuan, and 0.59 yuan, respectively. Based on the closing price of 8.75 yuan on the previous trading day, the corresponding dynamic PE is 34 times, 22 times, and 15 times, respectively, maintaining the company's “neutral” investment rating. Risk warning: the risk that the growth rate of downstream investment in the machine tool industry will slow down; the risk that the price of raw materials such as steel will rise; the risk that the progress of non-public offerings falls short of expectations and that financial pressure will increase.