The performance slightly exceeded expectations. In the first half of the year, the company realized income of 324 million yuan, an increase of 33% over the same period last year; net profit of 53 million yuan, an increase of 33% over the same period last year, and diluted earnings per share of 0.41 yuan, better than our expectation of 0.35 yuan. The company reported that it intends to increase 10 shares for every 10 shares in the capital reserve and pay a cash dividend of 1 yuan.

The machine tool industry recovers growth in the first half of the year, with sufficient orders, and the annual target is expected to be achieved. In the first half of the year, the revenue of CNC machine tools was 261 million yuan, an increase of 35% over the same period last year, and the comprehensive gross profit margin was 33%, which was basically the same. We expect the company to achieve the operating target of 750 million yuan in annual revenue and 150 million yuan in net profit attributable to the owner of the parent company (as disclosed in the 2009 newspaper).

The heavy machine tool project in cooperation with Hiszhuangming represents a qualitative leap in the company's processing capacity and industry status. East China heavy Industry is expected to start production in the first quarter of next year, and nuclear power processing business is the main source of growth in 2011. The company is located in the international advanced level of large-scale, heavy CNC machine tool manufacturers, while actively entering the broader space of ships, nuclear power, mining machinery and other large precision forging parts processing field. Cooperate with Hiszhuangming in Germany to manufacture CNC gantry mobile boring and milling turning center, φ 320 CNC floor boring and milling machine, 16-meter CNC six-axis gear hobbing machine, the company will transform from a machine tool manufacturer to a mechanical processing enterprise with the most heavy equipment and the strongest processing capacity in China. East China heavy Industry, a joint venture between the company and Hiszhuangming (75% of the company's shares), with a total investment of 600 million yuan, mainly engages in the production and processing of large and precision parts in nuclear power and other fields at home and abroad. We expect East China heavy Industry to start production in the first quarter of 2011, and the gross profit margin of the processing business may be as high as 50%. The joint venture and cooperation project is conducive to the company's R & D and manufacturing technology to the world-class level, and the follow-up profitability and high growth should be valued for a long time.

The transformation of large-scale CNC machine tools in the additional issuance project is progressing smoothly and will contribute profits after 2012. The company publicly issued about 8.75 million shares, and the financing of 350 million yuan has been successfully put in place. The construction period is two years. The precision large CNC machine tools raised and invested are mainly used for processing nuclear power, wind power, 10,000-ton shipbuilding, military, aerospace and metallurgical equipment. It is expected to contribute about 500 million yuan in annual income after 2012, with a net profit margin of about 16%.

Raise earnings forecast and maintain "overweight" rating. We raised our profit forecast for 2010-2011 from 1.05 yuan, 1.51 yuan and 1.96 yuan to 1.18 yuan, 1.77 yuan and 2.32 yuan, achieving rapid growth of more than 45% in the next three years. As a high-end CNC machine tool manufacturer benefiting from the construction of high-speed rail, wind power and nuclear power, the company will actively enter the field of parts processing such as nuclear power to gain broad space for development, and next year will be at an inflection point of performance growth. We are optimistic about the company's medium-and long-term growth and maintain its "overweight" rating.