Report Summary: The 12th Five-Year Plan period is a period of strategic development for China's machine tool industry. We believe that the global machine tool industry will continue to grow slightly in the future, and that the focus of demand growth will shift to developing countries. Demand growth in China's machine tool industry during the 12th Five-Year Plan period is mainly driven by western development, product upgrades, and the development of emerging industries. At the same time, the upgrading of industry demand and increased competition have made enterprises need to transform. The development of foreign machine tool companies in the domestic market is not conducive to the development of Chinese machine tool companies in the middle and high-end markets. Foreign economic crises have made them pay more attention to developing the Chinese market. The implementation of the cross-strait economic cooperation framework agreement began this year, and it is possible that a free trade zone between China, Japan, and South Korea will be realized in the future. This will increase China's imports and increase competition for high-end (especially mid-range) CNC machine tools and their functional components. This is not conducive to the self-upgrading and market development of China's machine tool products. The company has gone from remanufacturing to heavy service and R&D. We believe this is in line with the future development direction of the industry. The company is trying to create a new value smile curve at both the R&D and market ends. Focusing on the research and development of the core technology of CNC machine tools and product design adapted to China's industrial production model, we are currently gradually outsourcing low-end products to others. We mainly design and quality control for such products, and focus on the development and manufacture of mid-range products; by opening a 4S store and using our own CNC system research and development, we will improve our one-stop service for customers from product design to maintenance in the future and increase customer loyalty. We believe this is in line with future customer product and service needs. The company's expense ratio is expected to decline in the future. The company is gradually shifting from output value orientation to profit orientation. Although it will take some time, cost control will gradually be strengthened; since the company adopted an accelerated depreciation policy when the company last relocated, expenses for this batch of fixed assets will probably drop after depreciation; if the company succeeds in refinancing next year, financial expenses will also drop. Stock prices have dropped a lot recently, so we raised our rating to -B to increase our holdings. We believe that the company's dependence on subsidies will gradually decrease in the future, and that the company's development ideas are in line with the actual environment in China, so its performance will also be gradually released. We expect the company's earnings per share for the next three years to be 0.29 yuan, 0.36 yuan, and 0.50 yuan respectively, with a compound growth rate close to 25%. Based on the dynamic price-earnings ratio of 20 times in 2012, the company's reasonable stock price is 7.2 yuan. Recently, the stock price has dropped a lot. We believe that we have returned from the original high valuation to a reasonable valuation range, so we have raised the rating to -B Risk warning: The recovery of the machine tool market in the second half of next year fell short of expectations; the company's strategic execution fell short of expectations.