Due to the European debt crisis, the full-year results are expected to be basically the same as in 2010: the company's performance growth in the first three quarters of this year was relatively flat, and the domestic business, which accounted for 46% of total revenue, is expected to grow by 5%-10% throughout the year, but the European business is expected to decline by 42% throughout the year, limiting overall performance. Although the company's business area in Europe is concentrated in Eastern Europe, the development of Eastern European economies is mainly dependent on exports to the Western European market. Against the backdrop of Western Europe being dragged down by the debt crisis, the performance of the Eastern European economy has also been adversely affected. We expect annual operating income of 480 million yuan, net profit of 56 million yuan, and earnings per share to reach 0.42 yuan, which is basically the same as last year. Achieving positive revenue growth in 2012 is a probable event, but due to production capacity, it is difficult to have a strong performance: after experiencing a contraction in 2011, the European business should account for about 10% of the company's revenue, considering that the share of the American business is smaller (2.5% in the first half of this year, and includes South America). We believe that in 2012, even if the European and US economies continue to be sluggish, the company's business conditions will not be affected too much. Meanwhile, the steady development of the domestic market and the relatively rapid growth of emerging regions in Asia should support their positive revenue growth next year. However, the IPO fundraising production capacity will need to be launched in June 2013. Under conditions where the current production capacity is fully utilized, we believe that the company's performance in 2012 is unlikely to have a strong performance. Although the EU's newly introduced testing standards do not have a substantial impact on the company, the potential effects are worth paying attention to: the EU officially implemented new toy safety instructions with more stringent standards on July 20 this year, and restrictions on specific heavy metals were increased from 8 to 19 types, and the use of 66 types of allergenic fragrances etc. was banned or restricted for the first time, and the 15 types of phthalates widely used in toy production are highly concerned. The implementation of the law has raised the threshold for domestic toy companies to enter the European market. Since the company does not account for a large share of European business, its impact is limited. However, after a large number of small enterprises are unable to obtain living space in the European market in the future, they will inevitably increase exports to emerging markets and seize domestic sales markets. This will cause companies to bear more intense competitive pressure in the domestic and Asian markets. Whether the profit level can remain stable is yet to be tested. We expect net profit to remain basically the same in 2011-2012, with an “increase in holdings” rating: we expect the company's EPS in 2011-2012 to be 0.42 and 0.43 yuan respectively. The current stock price is 36 times that of PE in 2012, so the valuation level is expensive. Considering the recent trend of cultural investment themes extending towards the toy sector, we believe this will provide some support to the company's valuation level and give it an “increase in holdings” rating. Risk warning: Domestic market growth fell short of expectations, and competition in emerging markets exceeded expectations.