As a manufacturer of island-type microfiber PU synthetic leather, the company is one of the leading enterprises in the domestic microfiber PU synthetic leather industry and is in the first tier of the domestic industry. The company independently innovated and obtained the core patented technology for the production of island-type microfibers, breaking the technological monopoly of Japanese companies in this field. The amount of microfiber PU synthetic leather used in China has been increasing year by year since 2005, and the growth rate is relatively fast, far exceeding the growth rate of synthetic leather. The total demand for synthetic leather in China will continue to increase in the future, but different types and grades of products will show different development trends, and the market demand for microfiber synthetic leather will grow rapidly. The company's competitive advantage is mainly reflected in two points: (1) R&D and technical advantages: the company's “PA6/PE mixed island microfiber and synthetic suede series product development and industrialization” won the second prize of the National Science and Technology Progress Award issued by the State Council; (2) Major suppliers of well-known brands: Fujian, Guangdong, Shandong and other companies in China's important producing provinces of footwear, furniture, clothing, and gloves have all joined the mainstream suppliers, developing long-term partnerships with well-known domestic brands such as Anta, Guirenniao, Li Ning, Xtebu, and corresponding brand dealers. The company's future growth points lie in the expansion of microfiber leather production capacity: (1) a 3 million square meter ecological microfiber high simulation fabric production project; (2) a 10 million square meter ecological microfiber high simulation fabric project. The production capacity of the new microfiber PU synthetic leather will be initially released in 2013 and fully released in 2014. What is worth considering is that in the next two years, the synthetic leather industry will invest intensively in production capacity, and the company's new production capacity will be later than that of its peers, so it will inevitably affect the competitiveness of the company's products. We estimate that the capacity utilization rate, sales price, and gross margin of the company's microfiber leather products will all decline. Give it an “Excess Holdings-A” rating. According to our judgment on the company's current production capacity and the expansion of fund-raising projects, we expect EPS for 12-14 to be 1.23, 1.40, and 1.65 yuan, respectively, corresponding to 18, 16, and 14 times PE in 2012-2014, giving it an “increased holdings-A” rating, with a target price of 25 yuan for six months. Risk warning: (1) the risk of fluctuations in raw material prices; (2) increased competition in the industry has led to a decline in gross profit.