The Xiali headquarters mainly produces own-brand cars, and FAW-Toyota's investment income is the company's main source of profit. The Xiali headquarters mainly produces cars of independent brands such as Xiali, Vizi, Wilo, and N5, with an annual production and sales scale of over 250,000 units; due to the relatively long time that the main products have been on the market and the low average car prices, etc., the Xiali headquarters has continued to lose money in recent years. FAW Toyota, which holds 30% of its shares, is the company's main source of profit. In 2010, it contributed about 1.3 billion yuan in investment income and 0.81 yuan in earnings per share. FAW-Toyota's prospects are promising, and profits are expected to recover significantly in the third quarter. Toyota's share of the passenger car market in China is only 6.g% in the narrow sense, which is significantly inferior to VW (16.6%) and GM (g%), and does not match its global market share of 10.8%; it is anticipated that in the future, Toyota is expected to enhance its market position in China by increasing resource allocation in the Chinese market. FAW-Toyota's profit in the second quarter will be at a low point due to Japan's earthquake. With the full resumption of production in the third quarter, profit is expected to rise significantly, and net profit in 2011 is expected to be close to 4.2 billion yuan. Xiali quietly built up momentum to enhance her overall strength. Through continuous investment and accumulation in the research and development field, the quality of Xiali's products has improved markedly. According to J.D. POWER's vehicle reliability evaluation for the Chinese market, the Xiali and Vizhi models ranked 2nd in the market segment; in the first half of this year, Xiali sold 140,000 vehicles (+12%), outperforming most independent brand companies. The company currently has a production capacity of 400,000 complete vehicles and supporting engines and transmissions. With the new product launch process in the future, the public sector's operating conditions are expected to improve; however, considering the additional depreciation brought about by previous investment consolidation, it is conservatively anticipated that the loss amount of the headquarters will remain the same for the next 2 years. Xiali is of great strategic importance to the FAW Group. In 2010, FAW Group sold 2.56 million vehicles, ranking third in the domestic market, and the gap between the second-place Dongfeng Group and the fourth-place Changan Group was less than 200,000 vehicles; of these, the company contributed 250,000 vehicles to FAW Group, and its importance can be seen. It is speculated that the group has supported Xiali in CCTV advertising, etc., and we believe it is still possible to increase support from research and development and other fields in the future. Recently, the majority shareholder of the company changed from FAW Group to FAW shares, and the capital market is one step closer to FAW-Group's overall listing expectations. Risk factors: The automobile market is sluggish due to lower macroeconomic growth than expected, FAW Toyota's profit falls short of expectations due to low sales volume, low market acceptance of new models at headquarters, and rising prices of raw materials such as steel. Profit forecast, valuation and investment rating: The company's 2010/11/12 EPS is expected to be 0.14/ 0.26/0.35 yuan (2010 0.19 yuan), and the current price is 8.32 yuan, corresponding to 2010/11/12 PE of 59/33/24 times, respectively. Considering the losses of the headquarters and Toyota's rich profits, we believe that a more reasonable segmental valuation should be used for the company. Based on relatively cautious expectations, the reasonable valuation of Toyota's business is 12-13 times PE in 2011, and the valuation of the headquarters business returns to zero, then the company's reasonable market value is about 16 billion yuan, equivalent to a value of 10 yuan per share, raising the company's rating to “increase holdings.”