Matters: Net profit in 2012 was basically flat, with a decline of 40%-60% in the first quarter. Zhaori Technology (300333) released its annual report on April 18. The company achieved revenue of 231 million yuan in 2012, an increase of 12.29% over the previous year, and realized net profit attributable to the parent company of 79.2633 million yuan, a decrease of 3.44% over the previous year. The corresponding EPS is 0.71 yuan. At the same time, the company expects first-quarter results to decline by 40%-60% year on year. At the same time, the company plans to distribute 5 yuan for every 10 shares. Main opinion: The company's gross margin fell to 73.30% from 78.99% in the same period last year, but it still remained at a high level compared to its peers. Furthermore, the company's cost control situation is good. On the basis of large-scale promotion of new products, the sales expense ratio has remained at the past average level, and the increase in employee remuneration has raised the company's management expense ratio to 17.65% from 14.64% in the same period last year. After experiencing rapid growth in 2010 and 2011, the company's main business, payment cryptography, products entered a period of maturity and market demand stabilized. In 2012, with the increase in the market penetration rate of anti-counterfeiting products for financial instruments, market competition further intensified. Since the second half of 2012, the product sales prices of major enterprises in the industry have all dropped significantly, resulting in a sharp decline in the profit margin of the entire industry. Although the company completed the sales promotion of the second-generation electronic payment password device CI980 ahead of schedule in the second half of 2012, mitigating the downward trend in the company's product prices to a certain extent and making the company's product gross margin still in the leading position in the industry, the company's product gross margin has declined significantly since the second half of last year compared to the past three years. Within the industry, the company remains in a leading market position. In 2013, the sales volume of the company's electronic payment ciphers was basically the same as year on year, but due to the large year-on-year decline in gross sales profit, the company's revenue growth this year is still under great pressure. At present, the paper pattern cloning equipment that the company has vigorously developed will launch a prototype in the first half of this year. The sales model can be leased or bought out. It is expected that in the second half of this year, there will be small-batch sales and sales revenue generation. Since the company's payment cryptographic devices are still under pressure from falling prices this year, the company's gross margin will still decline this year. We expect the EPS that the company can achieve in 2013-2014 to be 0.79 yuan, 0.91 yuan, and 1.02 yuan, respectively, corresponding to 20.24 times, 17.58 times, and 15.71 times PE, respectively. It will take some time for the company's new product to be profitable. The target price was adjusted to 20.93 yuan, and the holding rating was reaffirmed.