Investment points: Leading companies in the domestic welding materials industry mainly sell more than 200 varieties of products in the three categories of electrodes, welding wires, and flux. They are the enterprises with the largest variety and the strongest supporting capacity in the domestic welding materials industry. The company's products are widely used in the welding field of major equipment manufacturing and infrastructure construction, and have been successfully used in nuclear power plant equipment, aerospace equipment, nuclear power equipment, and world-famous key projects such as the Three Gorges Project, Bird's Nest, and Water Cube, taking the lead among domestic peers. The company achieved total profit of 58.9388 million yuan in 2013, an increase of 31.96% over the previous year, and realized net profit attributable to the parent company of 39.8825 million yuan, an increase of 39.7% over the previous year. The industry has entered a period of transformation and upgrading. As the growth rate of downstream demand slows down, the overall prosperity of the steel industry declines, and the growth rate of total welding material consumption will slow down in the next few years. China's welding materials industry as a whole shows a pattern of high concentration, but also a large number of enterprises, and obvious polarization. In the field of low-end welding materials products, due to the low entry threshold, a large number of small and medium-sized enterprises have gathered here, and there is serious overcapacity, resulting in extremely intense market competition and very low profit levels. In recent years, with the improvement of the quality and variety of steel materials, and the improvement of the quality of various equipment manufacturing, infrastructure and key projects, higher technical requirements have been placed on the performance and stability of welding materials, and the demand for special welding materials is increasing. High quality, automation and special special welding materials are the overall development trend of the welding materials industry in China, and will also become the core competitiveness and advantage of enterprises. The company focuses on the high-end product market and maintains a steady business trend. The variety and production of the company's special electrodes rank first in the country, taking the lead in localizing welding materials for the manufacture of important nuclear power equipment. The quality of some products has already surpassed foreign brands, and it is the largest supplier of welding materials for nuclear power and military industries in China. The company has accelerated technological transformation, adjusted the product structure, built a new portion of production capacity on top of existing production capacity, and increased the proportion of high-end welding materials and high value-added products. In 2013, the company's profit level and product gross margin both increased to a certain extent compared to 2012. The gross margin for producing electrodes reached 16.99%, an increase of 2.7 percentage points over 2012; the gross margin of producing welding wire was 8.88%, an increase of 2.72 percentage points over 2012. The company promoting the interactive development of welding materials and welding equipment has publicly stated many times in its annual reports and official websites that in the future, it will build on welding materials and actively expand into the field of downstream special welding services, so as to achieve general contracting of the entire special welding project from welding materials and welding equipment to welding processes, and move from a “welding materials expert” to a “world-famous welding expert.” The strategic layout of the company extending downstream is full of room for imagination. The profit forecast and rating estimate that the company's 2014-2016 EPS is 0.30 yuan, 0.55 yuan, and 0.83 yuan respectively, and the corresponding valuations are 27 times, 15 times, and 10 times, respectively. The company is entering a stage of rapid growth in its main business and extension of downstream welding equipment and welding services. The valuation will improve, and it will be given a “buy” rating.