Concern 1: Main business bottom recovery company specializes in diamond tools, power tools and alloy tools. The products are mainly used in building decoration, infrastructure engineering construction, and decoration materials processing. Diamond tools are the company's main product, accounting for about 77% of revenue. Affected by the decline in domestic economic growth in recent years, the company's domestic revenue has declined over the past 12 years. The export business has shown a steady upward trend with the recovery of the European and American economies, and overall revenue has remained stable. However, due to large investment in early fund-raising projects, intense competition, sharp decline in product gross margin, and high costs, the company was marginally profitable for 12-13 years. The company's revenue is expected to be basically the same year on year in '14, and foreign trade is better than domestic trade. Profits have rebounded markedly due to a marked decline in management and financial expenses. The company expects a net profit range of 25.816 million yuan to 33.884 million yuan for the whole year, with a growth rate of 60% to 110%. Focus 2: Tool product structure has been upgraded, breaking through from mid-range to high-end. Large overseas potential companies have acquired and set up a number of new subsidiaries in recent years, mainly for high-end products and overseas markets. Currently, the company's overseas business accounts for more than 45%, and overseas business is growing well, and has great potential. 1) The company acquired the Shanghai branch of Germany's Prigao twice in 10 and 12 years, and plans to use German technical advantages to enter the woodworking and metalworking diamond tool market. The company specializes in polycrystalline diamond tools, which are used in floor manufacturing and other fields. Composite decking requires high accuracy in joint treatment, and the company's technical advantages are obvious. The current size of the company has not increased. Revenue and net profit for the first half of 2014 were 6.4 million yuan and 710,000 yuan respectively, and there is great potential for growth in the future. 2) The company acquired Cyclone Canada in 10 years to achieve localized production and independent brand sales of professional diamond tools in North America. 3) The company set up a subsidiary in Thailand in '11 to avoid US anti-dumping. The Thai subsidiary was fully put into operation in '13, and turned a loss into a profit. 4) Korea is prominent in high-end diamond tools. The two leading diamond tool companies, SHINHAN and EHWA, have a combined annual revenue of 2 billion US dollars. The company plans to establish an R&D center in Korea to increase R&D investment in high-end fields. Furthermore, the company has expanded from diamond tools to the power tool industry in the past few years, but due to the relatively stable market pattern of the power tool industry, the company's current power tool business revenue is less than 100 million yuan, the profit contribution is small, and the power tool business development is lower than the company's previous expectations. Focus 3: High-speed rail brake pads are expected to break through and will contribute greatly to the current market competition pattern: Currently, high-speed rail brake pads are basically monopolized by foreign companies. The largest suppliers are German Knorr, and others include Faville in France and Kawasaki in Japan. The 8-year cooperation agreement signed by the Ministry of Railways with the world's top three giants expired in 2012. The technical protection period for core components such as brake pads expired, and the General Railway Company promoted the localization of core components. Some domestic companies have already entered the high-speed rail brake pad market. Two of these private enterprises, Tianyi Shangjia and Puran, have obtained CCRC certification in 2013 and 2014, respectively, and have begun supply. The company's R&D progress and prospects: The company cooperated with Shijiazhuang Railway University and the Academy of Railway Sciences to undertake the China Star brake pad project in 2003. The China Star project was later terminated due to the introduction of overseas models, but the company did not abandon the high-speed rail brake pad project. The company is currently actively preparing for the bench test. According to the general procedure, an expert review is carried out after the bench test, followed by a 6-12 month on-board test to obtain CRCC certification. We believe that if all steps go well, the company's high-speed rail brake pads will be industrialized in '16. High-speed rail brake pad market capacity: By the end of this year, we expect the number of EMUs to reach 1,400 trains. Simply assume that EMUs above 300 km and below each account for half. For trains over 300 kilometers, each EMU is equipped with 20 brake pads, and a standard EMU requires 160; for 200-250 kilometer trains, the ratio of trains and trailers is different. Generally, each EMU is equipped with 16 brake pads, and each trailer has 32 brake pads; a standard train requires 160 to 192 brake pads, a simple average of 176 pieces. Currently, the unit price of brake pads for trains over 300 kilometers is about 13,000 yuan, and the unit price of brake pads for trains between 200 and 250 kilometers is about 5,000 to 6,000 yuan. Based on the unit price of 10,000 yuan for domestically produced 300-kilometer EMU brake pads and 5,000 yuan for 200-250-kilometer EMU brake pads, and based on EMU replacing brake pads 3.5 times a year, the current market capacity of high-speed rail brake pads is about 6.1 billion yuan. Performance flexibility: Due to the high entry barriers for high-speed rail brake pads and the long verification cycle, we expect that in the next few years, China's high-speed rail brake pad market will probably accommodate 3-4 local companies. These local companies may gradually occupy 50% of the market share. Of this 50% local share, we expect Boshen Tools may account for 20% to 30%, or reach 600 to 900 million yuan in revenue. Due to extremely high entry barriers, even considering the price drop after domestic production, we expect the profitability of the company's high-speed rail brake pads to be quite impressive. A simple assumption of a net interest rate of 30% can contribute 180-270 million to net profit. If calculated at a price-earnings ratio of 25 times, the market value of the high-speed rail brake pad business could reach 45-6.8 billion yuan. Focus 4: Set an increase for the majority shareholders, demonstrating confidence in the company's development. The company announced an additional issuance plan on October 28, 2014. It plans to issue 25.32 million shares and raise 249 million yuan. The distribution targets are three specific targets: Bozhi Investment, Chen Zhe (son of Chairman Chen Huairong), and Jin Fabin (general manager). The proposed issuance price is 9.83 yuan/share, and the lockdown period is 3 years. The purpose of the funds raised is to repay bank loans and supplement working capital. This additional issuance will provide financial security for the company's various business development, significantly reduce financial expenses, and demonstrate the confidence of the majority shareholders of the company in the company's future development and new business development. Conclusion: The company's early investment has entered the harvest period, the bottom of the main business has rebounded, and the development of high-end products and overseas market layout are good. High-speed rail brake pads are in a critical stage of bench testing, and are expected to be industrialized in 16 years, contributing greatly to the company's performance flexibility. We expect the company's earnings per share for 2014-2016 to be 0.14 yuan, 0.20 yuan, and 0.63 yuan, respectively. The corresponding dynamic price-earnings ratios are 96 times, 65 times, and 21 times, respectively, giving the company a “recommended” investment rating.