1. Incident Overview We recently conducted field research on Taier Heavy Industries and had in-depth discussions with the company's management on business conditions and future development strategies. The main business is expected to stabilize, and the focus is on strategic transformation. We are optimistic about the company's product line expansion in the field of steel smelting and transformation through epitaxial mergers and acquisitions. Excluding epitaxial mergers and acquisitions, EPS from 2014 to 2016 is expected to be 0.20, 0.26, and 0.33 yuan, respectively, and the corresponding PE is 44, 34, and 27 times, respectively. For the first time, coverage is given a “careful recommendation” rating. 2. Analysis and judgment demand is rigid and is expected to rise steadily throughout the year. The company's main products are the production and sales of universal couplings and drum-shaped gear couplings used in the steel smelting industry. We judge that the overcapacity pattern in China's steel industry will not change in the short term, and the company's coupling revenue will come from stable replacement demand and import substitution in the future. Couplings are industrial consumables, and their service life is 1-3 years. New steel production capacity has almost stagnated in the past few years, but sales of the company's products and spare parts can still be maintained on a large scale, and demand is somewhat rigid. We expect demand to stabilize in the first half of the year, and there will be a significant year-on-year improvement in the second half of the year. The convertible bond raising project will be put into operation by the end of the year. Early last year, the company issued convertible bonds to raise 320 million yuan for the three projects of precision rolls, cold-rolled universal couplings, and composite skateboards. It is expected to be put into operation by the end of this year according to industry demand. The company's product line will be broadened to further strengthen its market position. After completion, the project can produce 110 sets of precision rolls, 1,160 sets of cold-rolled universal couplings and 7,500 composite skateboards per year. Precision rolls, composite skateboards, etc. target import substitution and have strong profitability. Composite skateboards have a gross margin of up to 55%, and precision rolls are also over 40%. We expect that with the gradual release of production capacity, it will become a new growth point for profits. Joining hands with Silicon Valley Paradise to carry out the transformation path, the company announced a cooperation with Silicon Valley Paradise to professionally sort out the company's strategic planning and merger and acquisition ideas. Couplings are used in the fine molecule industry for equipment manufacturing. Although they account for more than half of them in the steel industry, they are only on the scale of 1 billion dollars, and the ceiling is obvious. Silicon Valley Paradise is an investment institution engaged in mergers, acquisitions, restructuring, and strategic consulting industries. It has rich industrial operation experience and a wide range of domestic and foreign channels and resources. This cooperation will help the company accurately position the direction of transformation, clarify mergers and acquisitions ideas, improve the efficiency of the company's industrial operation, and share the cake of equipment manufacturing upgrades. Executives took steps to increase their holdings, demonstrating their confidence in future development. The majority shareholders of the company began increasing their stock holdings in the secondary market through holding companies (Taier Investment and Xintai Investment) in March of this year. They plan to increase their holdings by no more than 2% of the company's total share capital within 6 months. Up to now, 2.18 million shares have been completed, accounting for 1.2% of the total share capital. It shows that executives are optimistic about the company's future development. 3. Stock price catalysts and risk alerts Stock price catalysts: epitaxial mergers and acquisitions; risk alerts: downstream steel mill operations deteriorate; fund-raising projects are progressing slowly.