Event: On September 1, we conducted field research on Tianlong Optoelectronics and had in-depth exchanges with company executives on the company's various business developments. Main views: 1. The company's future development strategy will focus on photovoltaic processing equipment and LED equipment. The photovoltaic processing equipment includes equipment such as monocrystalline silicon furnaces, polycrystalline silicon furnaces, multi-wire cutters, dry pans, and heat fields. Recently, LED equipment is centered on sapphire furnaces, and will be further expanded to MOCVD equipment in the future. In the long run, since the photovoltaic industry and LED industry have huge room for development, the company's long-term growth is worth looking forward to. 2. In the short term, the global photovoltaic industry may enter a stage of integration and adjustment from the second half of this year to next year due to the reduction of PV Internet subsidies in European countries such as Germany and Italy, the economic downturn in Europe, and the photovoltaic industry's own fluctuation cycle. In this context, the gross margin of some downstream small and medium-sized silicon chip companies is very low, and some have even fallen into a loss, and there is a possibility that they will go out of business or be integrated. In comparison, powerful large enterprises such as Saiwei LDK and GCL are more resilient to risk, and are likely to take advantage of this opportunity to further expand production. Prices of upstream polysilicon and downstream silicon wafers are likely to continue to slowly decline next year. After experiencing consolidation and further reduction in the cost of photovoltaic equipment, the entire industry is expected to usher in a new round of rapid growth in 2013. 3. Given the state of the photovoltaic industry as a whole, the sales volume of the company's monocrystalline silicon furnaces is expected to be the same as in the first half of the year. The annual sales volume is expected to be around 700 units, and sales revenue is between 400 and 500 million yuan. The growth rate is expected to slow significantly next year. In terms of polycrystalline silicon ingot furnaces, compared with similar enterprises such as Jinggong Technology and Beijing Yuntong, the company has yet to successfully develop large customers, while downstream small and medium-sized silicon wafer companies are currently facing survival difficulties. Therefore, it is difficult to increase the volume of polycrystalline furnaces this year and next two. Currently, the company's orders for polycrystalline furnaces are estimated to be around 15 units. Sales volume in the second half of the year is expected to increase compared to the first half of the year, and sales revenue is expected to be about 45 million yuan throughout the year. 4. James, a holding subsidiary of the company, specializes in hot field products. Thermal fields are consumables. Different parts have different replacement cycles. On average, the entire equipment needs to be replaced every 1.5 years. Currently, its hot market is in short supply, and the product price is about 200,000 units/set. Sales volume in the second half of the year is expected to be similar to that of the first half of the year, and annual revenue is expected to reach 200 million yuan. In addition, Changzhou Tianlong Light Source Material Technology Co., Ltd., a holding subsidiary of the company, mainly engages in crucible equipment manufacturing. Similar to hot fields, crucible products can increase the company's ability to supply parts on the one hand, and at the same time increase new sources of profit. It is estimated that the company's crucible product revenue will be around 4 million yuan per month, revenue in the second half of the year will exceed 20 million yuan, and is expected to achieve sales revenue of 28 million yuan throughout the year. 5. The company has basically mastered the R&D and manufacturing capabilities of sapphire furnaces. The products include different dosage types such as 30 kg, 40 kg, and 80 kg. The sapphire substrate is 2 inch, and the general price is around 1 million yuan. The price with technology (including training personnel, installation and commissioning, etc.) is over 1 million yuan, while the price of GT products from international manufacturers is around 700,000 US dollars, so the company's product price advantage is obvious. The company headquarters is mainly responsible for assembly, and related parts are provided by subsidiaries in the form of outsourcing. Judging from the technological route of sapphire growth, the US uses ES2 and heat exchange (HEM) technology, while Japanese manufacturers mostly use pull-crystal method and conduction method, and Russia mainly uses the bubble method. China's sapphire furnace technology mainly comes from Russia. The transfer cost of this technology is low, and the cost after large-scale production is still attractive. Currently, the main difficulty in the industrialization of domestic sapphire furnaces is that process problems have not yet been solved. For example, a series of issues such as how to control the temperature, how long to heat, etc., require continuous debugging in practice to find relevant parameters. The company is expected to basically solve process problems by the end of the year, and the sapphire furnace is expected to gradually become one of the company's leading products and a new profit growth point in the next two years. 6. The company's HQP225S multi-wire cutting machine was successfully launched at the beginning of this year, with a unit price of about 1.7 million yuan. Currently, it is estimated that it has sold about 10 units. By the end of the first quarter, its orders for multi-wire cutting machines had reached about 20 units. Since the main customers of the company's multi-wire cutting machines are small and medium-sized enterprises that have been greatly affected by industry fluctuations, due to the downturn in the global photovoltaic industry in the second quarter, some customers who have already paid advance payments have delayed delivery, which has had a negative impact on the company's sales revenue to a certain extent. The company plans to further launch a large-scale PV800 multi-wire cutting machine next year. The unit price is around 3 million yuan. Compared with the unit price of 5 million yuan for imported equipment, it has a clear price advantage. We believe that the long-term positive trend of the global photovoltaic industry has not changed, and the company's multi-wire cutting machine import substitution room is very broad. 7. MOCVD is a key equipment for the LED industry. Currently, there are only three companies in the world that can commercialize mass production: Aixtron, Veeco, and Taiyo Nippon, with a single device worth tens of millions of yuan. The company's MOCVD equipment prototype is expected to be developed in 2012, and it will take about 1 year from successful prototype development to sales. Therefore, we expect the company's MOCVD to be sold on a small scale in 2013. It is conservatively estimated that the company sold 2 MOCVD equipment for the first time in 2013, at a unit price of 13 million yuan, and achieved sales revenue of 26 million yuan. 8. Since the entire photovoltaic industry is likely to enter a stage of integration and adjustment in 2012, the company's sales of products related to photovoltaic processing equipment will inevitably be affected. On the other hand, in 2012, new businesses such as sapphire furnaces are expected to start contributing to performance. Taking into account negative and positive factors, we have lowered our forecast values for the growth rate of its revenue and net profit in 2012. In 2013, the global photovoltaic industry is expected to re-enter a stage of rapid growth, and the contribution of equipment such as sapphire furnaces and MOCVD equipment to performance is also expected to gradually show. We remain optimistic about the growth rate of its performance in 2013. We expect the company to achieve operating income of 827 million yuan, 1,052 million yuan and 1,874 million yuan respectively from 2011 to 2013, and achieve EPS of 0.82 yuan, 1.03 yuan and 1.94 yuan respectively. As of the close of trading on September 2, the company's stock price was 23.97, and the dynamic PE corresponding to 2011-2013 EPS was 29 times, 23 times, and 12 times, respectively. Compared with similar listed companies, the short-term valuation of the company is high, but the long-term valuation has an advantage. 9. Investment suggestions: We believe that the company's main business spans the two major emerging industries of photovoltaics and LED. The long-term market space is broad, and the company's reserve business is rich, with many highlights. However, since the global photovoltaic industry is facing adjustments in the short term, it will take time for the LED industry to scale up, and the company's performance will be released in 2013. Therefore, although we are optimistic about the company's long-term development prospects, we believe that this is not the best time to intervene, so temporarily downgrade its rating to “hold.”