From January to December 2010, the company achieved operating income of 8.047 billion yuan, a year-on-year increase of 32.62%; operating profit of 29.6 million yuan, a year-on-year decrease of 4.38%; net profit attributable to owners of the parent company of 142 million yuan, an increase of 427.54%; and basic earnings per share of 0.26 yuan/share, lower than our expectations. Revenue increased significantly but below the industry average. In 2010, the machine tool industry fully recovered: the annual production of gold cutting machines in the industry was 72,000 units, an increase of 34% over the previous year, including 220,000 CNC metal cutting machine tools, an increase of 54% over the previous year. However, the company's sales were slightly lower than the industry average: in 2010, the company achieved sales of 68,000 machine tools, a year-on-year increase of 20%, including 21,000 CNC machine tools, an increase of 39% over the previous year. The growth rate is lower than that of the industry mainly because the company, as an industry giant, has a large base. We judge that benefiting from industrial upgrading, the machine tool industry will enter a new boom cycle in 2011. The company is expected to follow the growth of the industry, and revenue is expected to continue to grow at a relatively high rate. Gross profit margins are generally stable. In 2010, the company's comprehensive gross margin was 21.54 percent, a slight decrease of 0.08 percentage points over the previous year. Although the gross margin of ordinary machine tools increased, the gross margin of CNC machine tools fell 6.2 percent year on year. We believe that the gross margin of CNC machine tools is expected to stop falling and pick up in 2011, mainly because: on the one hand, the industrialization project for functional parts of CNC machine tools and vertical machining centers will be completed and put into operation in 2011, which will drastically reduce the procurement costs of functional components, while the gross margin of vertical machining centers is high; on the other hand, the company will increase production arrangements for CNC machine tools, and plans to increase the NC rate by 4 percentage points to 64%. The profits mainly come from government grants. The company's expense ratio for the period was 20.3%, up 1 percentage point from the previous year. The sales expense ratio increased slightly due to the company's increased marketing efforts; at the same time, the financial rate rose 24% year on year when interest rates rose due to the company's higher liabilities. The company's high period expense ratio led to an operating profit margin of only 0.4%. The sharp increase in the company's net profit was mainly due to government subsidies of up to 149 million yuan. The company's path to “transformation and innovation” will also take a long time. Profit forecast and investment rating: Without considering government subsidies, we expect the company's EPS for 2011-2013 to be 0.2 yuan, 0.34 yuan, and 0.54 yuan, respectively. Based on the closing price of 13.83 yuan on February 24, the corresponding dynamic PE is 68 times, 40 times, and 26 times, respectively, maintaining the company's “neutral” investment rating. Risk warning: 1) Risk of rising prices of raw materials such as steel. 2) The risk that the growth rate of downstream investment in the machine tool industry will slow down. 3) Performance is due to significant uncertainty about government subsidies.