Incident: The company released its semi-annual report on the evening of August 25, stating that revenue for the first half of 2013 was 1,114 million yuan, up 0.58% year on year; during the reporting period, the company achieved net profit attributable to shareholders of listed companies of 0.32 million yuan, a year-on-year decrease of 42.44% from the same period last year. After deducting non-recurring profit and loss, net profit attributable to shareholders of listed companies was 31 million yuan, a year-on-year decrease of 42.08%. Basic earnings per share were 0.12 (yuan/share). Basically as expected. Revenue and gross margin were not much different from the same period in 2012. The main reason for the sharp decline in net profit was the large increase in period expenses and asset impairment losses. During the reporting period, the company's revenue rose 0.58% year on year, which is basically the same as the same period in 2012. The gross margin fell 1.06 percentage points from the same period last year, and there was little change. However, the main reason for the sharp decline in net profit in the first half of the year is that total profit is currently at a cyclical low, and sensitivity to changes in operating costs has increased, while expenses and asset impairment losses increased significantly year-on-year during the current period, leading to a sharp decline in profit. Among the period expenses, sales expenses increased rapidly; in addition, the increase in inventory led to a sharp rise in asset impairment losses in the current period. During the reporting period, the year-on-year increase in management expenses and financial expenses was 12.44% and 5.12% respectively, which is within the normal range of fluctuations. The year-on-year increase in sales expenses in the current period reached 38.91, mainly due to increased wage costs and marketing expenses. We believe that the company's high-power medium-speed diesel engine products are currently in the marketing stage, so the increase in sales expenses is normal. As sales of new products gradually get on track, the increase in sales expenses is expected to fall back to normal levels in the future. Furthermore, the company's inventory reserves increased by 43.13% during the current period. According to the company's accounting system, the increase in calculated inventory price reduction preparations led to a sharp increase of 756.38% year-on-year in asset impairment losses in the current period. This is also one of the main reasons for the sharp decline in net profit in the first half of the year. By product, the diesel engine business has remained stable. The generator set business achieved a sharp increase in revenue and gross margin, and the performance of the spare parts business declined significantly. During the reporting period, while the boom in the shipbuilding industry was still sluggish, the diesel engine business, which accounts for the largest share of revenue, remained stable. We believe this has a lot to do with the company's current strategy of promoting high-power medium-speed diesel engine products mainly supporting the business boat market; while the revenue of generator set products increased 13.18% year over year, and gross margin increased 2.28 percentage points over the same period last year. We believe this is closely related to strong market demand and the company's marketing strategy; however, the revenue of the parts business fell 19.61% year on year, and gross margin decreased by 4.49 percentage points. However, this business also fell 4.49 percentage points. It accounts for a relatively low share of revenue, so it will not have a major impact on performance. New orders increased dramatically in the second quarter, with sufficient on-hand orders, and future performance guaranteed. The company received 225 million yuan of new orders in the second quarter, up 452.58% from the 41 million yuan in the first quarter. Combined with the data that China's shipbuilding industry received a 156% year-on-year increase in new orders in January-July, we believe that industry sentiment is gradually picking up. As of June 30, the company had sufficient orders, reaching 315 million yuan, and is expected to continue the sharp increase in order volume in the second quarter, and marine LNG engines are expected to become a new growth point in the future. Marine LNG power has advantages such as low cost, low emissions, and minor modifications to the existing power structure. It is expected to be used on a large scale in China's inland waterway shipping in the future, becoming a new field for extending the LNG industry chain. Meanwhile, industry standards and technical standards related to LNG powered ships are expected to be introduced in the second half of this year. This will break the dilemma of lack of standards in the LNG powered ship industry and play an essential catalytic role in the development of the industry. As a major domestic marine engine manufacturer, the company has successfully developed marine gas engines and gas generator sets, and will launch corresponding products in due course in response to market needs, leading the way in the development of the marine LNG engine market. Maintain a “Cautious Recommendation” rating. We expect earnings per share for 2013-2014 to be 0.21 yuan and 0.28 yuan, respectively, and the corresponding PE is 35.24 times and 25.97 times, respectively. Maintain a discreet recommendation rating. Risk warning. Increased market competition led to a further decline in gross margin, and sales of new products fell short of expectations.