Incident description Jiangsu Tongrun released an annual report today. During the reporting period, the company achieved operating income of 892 million yuan, an increase of 7.19% over the previous year; operating costs of 699 million yuan, an increase of 7.35% over the previous year; realized net profit attributable to the parent company of 44 million yuan, a decrease of 0.69% over the previous year; and achieved an EPS of 0.18 yuan. Among them, operating income was 249 million yuan in the fourth quarter, up 24.54% year on year; operating cost was 195 million yuan, up 24.81% year on year; net profit attributable to the parent company was 0.9 billion yuan, up 18.27% year on year; and EPS for the fourth quarter was 0.04 yuan, and the third quarter was 0.06 yuan. Incident review The overall operation was stable, and increased competition did not benefit from falling raw material prices: Overall, the company maintained a consistent stability in 2012. In terms of revenue, annual revenue increased 7.19% year on year: 1. The main domestic sales products, high and low voltage switch cabinets and electrical components, benefited from domestic transmission and distribution grid construction, and revenue increased 17.49% and 47.36% year-on-year respectively; 2. The main export product tool cabinet was affected by low foreign demand, orders fell, and revenue fell year-on-year; the sheet metal products business benefited from the release of production capacity from fund-raising projects, and revenue increased by 21.86% year on year. In terms of profitability, with prices of major raw materials falling, the company's gross margin remained stable throughout the year: 1. The major export products, tool cabinets and sheet metal products, were affected by sluggish foreign demand, industry competition intensified, and the order cycle also contracted, so gross margin did not significantly benefit from falling steel prices, and gross margin increased little year over year; 2. The high and low voltage switchgear business market competition was sufficient, and product margin fell from 23.96% to 21.26%, limiting the company's profit improvement. In 2013, the subsidiary Tongrun Switch Factory introduced a unilateral cash capital increase of 5.3 million yuan from Dingrun Asset Management Company. After completion, Dingrun Asset held 34.64% of Tongrun Switch's shares. Since Dingrun Asset shareholders are all Tongrun Switch managers and employees in key positions, the transaction is essentially an equity incentive, which will help stimulate management enthusiasm. The main business was stable in the fourth quarter, and net profit declined slightly month-on-month due to impairment losses: the company's operating income increased 14.20% month-on-month in the fourth quarter: 1. With both domestic and foreign economies stabilized, the company's order situation may have improved; 2. Considering the decline in inventory commodity inventories, concentrated order confirmation may be the main reason for the month-on-month increase in revenue in the fourth quarter. While overall gross margin remained stable in the fourth quarter, revenue growth led to a month-on-month improvement in gross profit, but due to the increase in three expenses and impairment losses, the company's net profit for the fourth quarter declined month-on-month. It is expected that the restructuring of the industry will bring further profit growth: the 100KW photovoltaic inverter product developed by the company and the PV System Engineering Research Center of the Ministry of Education has obtained the Golden Sun certificate issued by the CQC and obtained production qualifications; the 500KW photovoltaic inverter has also passed the CQC certification test. Entering the new energy industry will further improve the company's product structure and bring new long-term growth points to the company. It is estimated that the company's 2013 and 2014 EPS will be 0.18 yuan and 0.17 yuan respectively, maintaining the “recommended” rating.