According to the 2009 mid-year report, the company achieved operating income of 501 million yuan, a year-on-year decrease of 26.77%; operating profit of 21.46 million yuan, a year-on-year decrease of 26.48%; net profit attributable to the parent company was 22.97 million yuan, a slight increase of 3.89% over the previous year; and diluted earnings per share was 0.062 yuan. Review of the company's business performance in the first half of the year: The company is one of the leading enterprises in the plastic packaging film industry in China, mainly engaged in the production and sale of BOPP and BOPET films. During the reporting period, mainly affected by the decline in film product prices, the company's sales revenue fell 26.77% year on year; since the decline in raw material cost prices was greater than the drop in product prices, the company's comprehensive gross margin increased 1.82 percentage points to 14.23% year on year, and the increase in management expenses led to the company's period expense ratio reaching 9.29% (up 1.50 percentage points year over year), which offset the positive impact of the increase in gross margin on the company, so the decline in operating profit was consistent with the decline in revenue; net profit attributable to the parent company bucked the trend and rose slightly It was mainly due to a sharp increase in non-operating income (an increase of 831%) and a sharp drop in the actual income tax rate (a year-on-year decrease of 18.78 percentage points). The increase in non-recurring profit and loss made it difficult to disguise the decline in the main business: the main reason for the positive increase in net profit in the first half of the year was the sharp increase in government subsidies, reaching 5.63 million, an increase of up to 831%. After deducting this non-recurring profit and loss, the total profit of the company fell by about 30%; in addition, the actual income tax expenses during the reporting period were only 540,000, a sharp drop of 91% compared with 6.2 million in the same period last year, and a sharp drop in income tax expenses, resulting in a 3.89% year-on-year increase in net profit attributable to the parent company. We believe that the slight year-on-year increase in net profit does not disguise the difficulties faced by the company's main business. The probability of a sharp rise in oil prices is small, and the company's cost pressure is low in the second half of the year: it is expected that international oil futures prices will fluctuate between 60-80 US dollars/barrel in the second half of the year (the average price of crude oil was around 88 US dollars in the second half of last year), and the fluctuation of oil prices at lower prices will limit the room for the increase in the company's main raw material synthetic resin to a certain extent. Therefore, the company's cost pressure in the second half of the year is not great, and whether profits can be raised mainly depends on the recovery progress of demand in the downstream packaging industry. Follow the private issuance process: the company plans to privately issue 60 million to 11 million shares, with an issue price of not less than 6.74 yuan. After deducting the issuance fee, the capital raised will not exceed 650 million yuan. The plan is to invest in a new functional BOPET packaging film construction project with an annual output of 60,000 tons and an ecological food (BOPP/PP) composite film technology improvement project with an annual output of 12,000 tons; after the two projects are delivered, the company's market sales scale is expected to double, and its comprehensive competitive strength will be strengthened; due to the undisclosed increase, it is still necessary to report to the Securities Regulatory Commission for approval before implementation; due to the private increase, the private offering still needs to be approved by the Securities Regulatory Commission before implementation; The stock issuance price is high (48 times the dynamic PE corresponding to the expected earnings of 0.14 yuan per share in 2009), and the profitability of the company's current main business still needs to be improved, so we think it is difficult to complete this undisclosed increase. Profit forecast and investment rating: According to the company's interim report performance, we lowered our profit forecast. Without considering undisclosed increases, the company's EPS for 2009-2010 is expected to be 0.14 yuan and 0.18 yuan respectively, and the dynamic PE corresponding to the closing price of 7.39 yuan on August 12 is 52 times and 40 times, respectively. Considering that the company's stock price does not have an advantage in valuation, we maintain a “neutral” investment rating for it. Risk warning: (1) competition in the industry is fierce, which has a significant negative impact on the company's profitability; (2) risk of sharp fluctuations in raw material prices; (3) systemic risk in the capital market.