Aspects that do not match predictions. Changyu announced its fiscal year 09 results. The company achieved net profit of RMB 1,127 billion, an increase of 26% over the previous year, which was 7%/3% higher than Goldman Sachs/Bloomberg's forecasts, respectively. The main reason was that sales were higher than expected (7% higher than Goldman Sachs's forecast). Key points in the annual report: (1) The gross margin for fiscal year 09 was 65.6%, higher than our forecast of 64.9%. The main reason was that sales of high-end products made the product structure better than expected. For example, Chateau Cabernet's wine sales accounted for about 51% of wine sales in 2009 (50% in 2008). The share of winery wines in wine sales also increased to 18% from 15% in 2008. (2) The company stated that sales of high-end products achieved strong growth in 2009. Among them, sales of Jiebaina and Château wines increased by 15%/40%, respectively. (3) After completing the 2009 sales target of RMB 3.8 billion, the company set a sales target of RMB 4.8 billion for 2010. (4) Changyu raised its capital expenditure budget for 2010 to RMB 517 million and plans to speed up the construction of vineyards/wineries in Shanxi, Ningxia, and Xinjiang. (5) We believe that investment in Hang Fung Bank will have a limited impact on earnings in the short term, although in the long run, this investment may increase Changyu's profit. Investment impact. We raised Changyu's earnings per share forecast for 2010-2012 by 4-6% to reflect higher-than-expected sales of high-end products. Based on the anticipated price-earnings ratio of A share 26 times in 2010 (no change) and the expected price-earnings ratio of B shares 17 times in 2010 (no change), we raised the 12-month target prices for the shares A and B shares from RMB 63.0 and HK$46.9 to HK$66.7 and HK$49.7, respectively, and maintained their neutral/sell ratings for A/B shares. The main risk: growth of high-end products is slowing down and competition is intensifying.