Operation in 2011:

Shanxi 3D announced its 2011 results, with an annual operating income of 5.44 billion yuan, an increase of 95.3% over the same period last year; an operating profit of 12.21 million yuan, a net profit of 32.12 million yuan belonging to shareholders of listed companies, a decrease of 4% over the same period last year; and a combined income of 0.068 yuan per share. But net profit after deducting non-recurrent gains and losses was only 21.83 million yuan, down 43 per cent from a year earlier. The company will not allocate or increase in 2011.

The company also announced its results for the first quarter of 2012, with operating income of 1.598 billion yuan, an increase of 47% over the same period last year, and net profit of 9.37 million yuan, down 37% from the same period last year.

Front:

Revenue increased significantly in 2011: the volume and prices of the company's main PVA and BDO products increased in 2011 compared with the same period last year, as well as trade revenue from chemical products, so sales revenue in 2011 almost doubled compared with 2010.

The prosperity of BDO series products has rebounded in 11 years, and prices have rebounded in 12 years: the company's BDO series products (including BDO and downstream THF, PTMEG and GBL) rose in volume and price in 2011, and the gross profit margin increased by 4 points to 27%, making it profitable. BDO prices have fallen in the third quarter of 11 with the deterioration of the economic environment, but over the past 12 years, boosted by factors such as supply-side BASF overhaul and the high cost of parking in foreign butadiene laws, prices have rebounded by about 20% from the end of last year; this has led the company to reverse losses in the first quarter and make a small profit.

Negative:

PVA product profit continues to be low: the company's downstream demand for PVA products is low, with a gross profit margin of only-6% in 2011, which is a drag on the company's profit.

Financial expenses erode profits: the company's 11-year capital expenditure has led to a larger increase in borrowing, coupled with rising interest rates, resulting in a nearly doubling of financial expenses and a substantial erosion of profits.

Valuation and recommendations:

We expect the company's earnings per share from 2012 to 2013 to be 0.18 yuan and 0.22 yuan respectively.

The current stock price is 46x and 38x respectively for 2012-2013 PE, maintaining a "neutral" rating.