Key takeaways 1. Downstream demand is weak, and the company's traditional diamond tool business is facing bottlenecks. The company's traditional business is mainly diamond tools, including abrasives and blades, and is a leading domestic diamond tool manufacturer. The company's main markets are Europe, America and China, and domestic and foreign shopping malls account for a comparable share. More than 80% of the downstream market for diamond tools is in the field of decoration and building materials. Downstream demand has been greatly affected by the decline in domestic real estate investment growth and the decline in infrastructure construction. Downstream demand is scattered, and enterprises all adopt a dealer model. Lack of innovation in the dealer model will limit development. The company has already begun to take measures while actively promoting the expansion of high-end and overseas markets, which may bring new profit growth points to the company in the future. 2. Develop the high-speed rail brake pad market and inject new growth impetus into the company. In the future, the market will enter a boom period after rail transit, with an average annual demand of nearly 8 billion dollars for brake pads. Currently, the market still mainly relies on imports, and there is plenty of room for localized replacement. The core process of high-speed rail brake pads is similar to powder metallurgy technology, which is the core process of diamond tools, so the company has technical advantages. In addition, the company has participated in the high-speed rail gate project in the “China Star” project, and has accumulated related technology and patents. At present, the company's high-speed rail brake pads have obtained temporary certification for a speed of 350 per hour, and are initially in place to test. The next step is for a sports car of 300,000 kilometers. After successfully passing, it can obtain CRCC certification. 3. Profit forecast We expect the company's 16-17 EPS to be 0.10 and 0.45 yuan, respectively, and the corresponding PE will be 104X and 23X, respectively, to give recommended ratings. 4. Risk indicates that downstream diamond tools will continue to worsen the risk, and the risk that the high-speed rail brake pad business will not expand smoothly