Focus 1: The two traditional main businesses of intelligent mechanical equipment and automation system integration are growing rapidly 1) The intelligent machinery and equipment business is expected to double year-on-year in 2014. The company's intelligent mechanical equipment is mainly tire forming machines, including all-steel wire one-step molding machines (light truck type, heavy duty type, fully automatic type), half-steel passenger radial tire one-step molding machines, half-steel two-drum fully automatic tire ring heat laminating machines, all-steel four-drum automatic tire ring heat laminating machines, fully automatic tread containers, pressure exhaust line devices, etc. The company's tire molding machine has the characteristics of high tire molding accuracy, good tire consistency, high production efficiency, fast replacement specifications, easy maintenance, beautiful tire appearance standards, uniform distribution of steel wire rubber, and good dynamic balance performance. Due to the self-sufficiency of the company's core components, the company's products have a strong cost advantage in the market, and the gross margin is also far higher than that of competitors. Furthermore, the company uses its technical advantages and customer resource advantages in the field of automatic tire equipment control to develop a “flexible industrial material delivery system” for the tire industry, promote it among the company's tire molding machine customers, and strive to develop new customers. 14 In the first half of the year, intelligent machinery and equipment achieved revenue of 127 million yuan, an increase of 112.83% over the previous year. The main reason is that the tire industry is booming this year, tire companies are reforming production lines more often, and market demand is picking up. At the same time, the company released additional production capacity for tire molding machines. In the first half of this year, it sold about 30 sets, and is expected to sell 60 sets throughout the year, doubling the previous year. We expect sales in 15-16 to be 85 units and 100 sets, respectively, up 42% and 18% year on year respectively. 2) The integration of electrical automation systems continues the high growth trend. Electrical automation system integration is the company's traditional dominant business. It mainly provides automated control systems for metallurgy, petrochemical, oil and gas, electricity, and water treatment industries. In 2013, the automated integrated system achieved revenue of 85.422 million yuan, an increase of 55.30% over the previous year, and achieved revenue of 63.2325 million yuan in the first half of the year, an increase of 14.07% over the previous year, continuing the growth trend. It is expected that rapid growth will be achieved in 2014 with the completion and commissioning of the fund-raising project “Energy-Consuming Industrial Intelligent Unit Integrated System Industrialization Project” at the end of September. The average 15-16 years were in a period of rapid release of production capacity. Focus 2: Smart cities: Urban pipe gallery construction is on the rise, and a wide range of smart cities can be expected with multi-field layouts. Since 2012, the company has obtained urban integrated pipe gallery construction and urban sewage treatment construction projects. In the future, the company will provide solutions in six fields, including electricity, water resources management, transportation, safety, management, and health care, and integrate all core systems of urban operation, laying a solid foundation for the company's further development in the field of urban intelligent innovation. Carry out a comprehensive layout of various fields in the intelligent city industrial chain, such as security, fire protection, energy saving and emission reduction, renewable resources, etc. In terms of business model, the company will establish a “one-stop” business model of “full range of product supply+financing construction model+personalized solutions+regional strategic partner construction+bank or trust company accounts receivable buyout business+comprehensive post-operation service and maintenance”. 1) The second phase of construction of the company's Hunnan New Town Pipeline System has been postponed, but it is progressing in an orderly manner. In August 2012, the company won the bid for the Shenyang Hunnan New Town Integrated Pipeline System Phase I and Phase II construction projects, totaling 26.2 kilometers, with a total value of 1,075 billion yuan. The first phase of the 21.1 km continuous construction project has been completed and delivered by the end of October 2013. The 2012-2014 H carry-over confirmation was 258 million yuan, 593 million yuan, 62.5 million yuan, and the remaining 160 million yuan. The company and the government negotiated separate payment and settlement for the first and second phase construction projects, and agreed to enter the repurchase period separately. The second phase of the project is about 5 kilometers, and currently there are about 3.5 kilometers left. All government departments will jointly complete the land acquisition and demolition work to ensure that the second phase of construction has complete construction conditions in 2014. The second phase of the construction project is expected to be delivered in 2015. The current operating model has put great financial pressure on the company and created obstacles to the expansion of the company's other business areas. We believe that local governments are motivated to complete repurchases as soon as possible through low-cost debt issuance financing. This move will help ease the company's plight. Furthermore, in future similar projects, companies may adjust their strategies to reduce bank loans and improve cash flow by introducing third parties. 2) Urban integrated pipe gallery construction is “on the rise,” policy plans have been implemented, and the market size has been close to 100 billion dollars in the past three years. Since this year, the State Council has successively issued the “National New Urbanization Plan (2014-2020)” and “Guiding Opinions on Strengthening Urban Underground Pipeline Construction Management”, which have deployed urban underground pipeline construction and urban integrated pipe gallery models, providing direction for underground pipeline construction in various regions. Following the introduction of the above policies, various regions have successively issued specific plans or guidelines to implement the guidelines for the construction of urban underground pipelines. For example, Shandong, Sichuan, Guangdong and other places have successively introduced plans to promote the construction of urban underground integrated pipe galleries. We expect that the national demand for urban pipe gallery construction will exceed 2,000 kilometers in the next three years. Based on the cost of 41 million yuan per kilometer, the national market capacity is close to 100 billion yuan. If we look at the cost of 41 million yuan per kilometer, the market capacity will be even greater in five to ten years. The company has accumulated experience through the Hunnan project, and is expected to obtain further new projects in the future, providing the company with strong performance flexibility. 3) The sewage treatment project in the western city of Leling City is progressing faster than expected. In September 2013, Lan Ying Intelligence, a wholly-owned subsidiary of the company, and Shandong Dezhou Leling Sewage Treatment Plant signed the “Leling West New Town Sewage Treatment Project Investment and Construction Contract” for the Leling West New Town Sewage Treatment Project in Leling City. The construction scale of the project treats 20,000 cubic meters of sewage per day, the total length of the supporting pipeline network is 51.23 kilometers, and the Leling sewage treatment project is 92.8042 million yuan. The construction period is until the end of '14. Revenue of 61,212,400 yuan has been confirmed for the first half of this year, and it is expected that all revenue will be confirmed throughout the year. Concern 3: Digital factories and precision machinery are still in the cultivation period. These two businesses, which will become important growth engines for the company in the medium to long term, are currently still in the cultivation period. In the short term, the industry still has standardization issues and high cost issues, but in the medium to long term, with the upgrading of China's manufacturing industry, both businesses have great potential for development. 1) The digital factory has achieved a breakthrough in orders and has great potential for development. The “digital factory” is based on data relating to the entire life cycle of the product. In a virtual computer environment, the entire production process is simulated, evaluated and optimized, and further expanded to a new production organization method for the entire product life cycle. As a new type of manufacturing system, it provides a manufacturing process information platform for manufacturers and their suppliers, so that enterprises can design, plan, simulate and manage the entire manufacturing process, and share manufacturing information with relevant departments and suppliers in a timely manner, thus realizing virtual manufacturing and parallel engineering to ensure the smooth progress of production. “Digital factories” have become a popular trend in high-end manufacturing in developed foreign countries, and are known as a “new industrial revolution.” For example, NASA uses digital factories to simulate and analyze changes in the environment of instruments in spacecraft during satellite flight; Boeing uses digital factories to drastically reduce aircraft costs, shorten design and manufacturing time, and reduce product defects; BMW has reduced overall product development and manufacturing costs and improved flexible production capabilities; and domestic joint venture automobile manufacturers such as Volkswagen and General Motors have also adopted this manufacturing model. After a period of cultivation, the company has achieved a breakthrough in orders (14H revenue is 7.217,500 yuan). Although the current scale is small, the business has great potential for development as an advanced manufacturing system. 2) Precision machinery is expected to replace imports. The company's precision machinery is mainly high-end CNC machine tools and electric spindle units. China's high-end CNC machine tools rely heavily on imports, and the proportion of electric spindles used in CNC machine tools is less than 10%, far lower than the 90% application ratio in developed countries. The company introduced German technology through a joint venture with DVS in Germany to establish Shenyang Weimar Precision Machinery, making a breakthrough in product development, and is expected to replace imports in the future. Conclusion: The integration of the company's traditional two main businesses, intelligent machinery, equipment, and automation systems, is growing rapidly. Although the performance of the smart city business fluctuates greatly due to the pace of revenue recognition, the huge market space provides the company with strong performance elasticity, and the digital factory, high-end machine tools, and electronic spindle business that is being cultivated provides an impetus for the company's future growth. The company has been in the momentum stage for 14 years. After solving the problems of the use of raised capital and the use of funds for pipe gallery projects, the company is expected to open up a new situation in subsequent business development and capital operation. We expect the company's earnings per share for 14-16 to be 0.42 yuan, 0.60 yuan, and 0.76 yuan, respectively, and the corresponding dynamic price-earnings ratios are 38 times, 28 times, and 21 times, respectively. For the first time, an investment rating of “Highly Recommended” was given. Give 35 times PE for 15 years, with a target price of 21 yuan.