Key investment points: 1. Incident The company released its annual report. In 2013, the company achieved revenue of 2,324 billion yuan, an increase of 10.39% over the previous year; net profit of 39.25 million yuan, a year-on-year decrease of 46.83%; and EPS of 0.14 yuan. 2. Our analysis and judgment (1) The company's inflection point; the actual performance situation is relatively good, and the inflection point of the company's revenue is apparent due to three major factors. Operating profit reached 283 million yuan, an increase of 41.1 million yuan over the previous year; gross margin reached 12.2%, an increase of 0.7 percentage points over 2012. An upward trend in performance has taken shape. Net profit was ostensibly lower than the expectations in our in-depth report of about 15 million yuan, but in essence, it was due to three major factors: (1) the company calculated asset impairment losses of 56.01 million yuan in 2013 (a year-on-year increase of 38.1 million yuan; a year-on-year increase of 56.22 million yuan; mainly due to an increase of RMB 56.22 million for inventory price declines, of which 4.04 million yuan for raw materials); (2) sales expenses reached 60.75 million yuan (up 33.3 million yuan year-on-year, mainly due to increases in maintenance service fees and production license fees); (3) Accrued depreciation reached 101 million yuan (an increase of 2.28 million yuan over the previous year); (Annual turnover of 650 million yuan). The actual performance of the company is relatively good. (2) The market share of traditional products has increased; new products will double. In 2013, the company's traditional products achieved a steady increase in market share despite the overall decline in the market. The company's strategic new product, a high-power medium-speed diesel engine (large engine), achieved a breakthrough in the offshore equipment market after successfully supporting official ships and pelagic fishing boats; future prospects for large aircraft in fishing vessel upgrades, fishery administration and maritime supervision, channel dredging, offshore shipping, and auxiliary aircraft markets for large shipping vessels are promising. In 2013, the company received 450 million yuan of new orders for large machines and 390 million yuan for handheld orders. According to the estimate of the average price of 5 million yuan per unit, we judge that the company has orders for large machines close to 80 units. Taking into account the large machine manufacturing cycle and the order situation in the first quarter of 2014, we judge that the company is expected to deliver 80-100 large machines this year, which will double growth; the large aircraft business volume will strongly hedge against depreciation effects. (3) The comprehensive strategic transformation of the power generation equipment business has great potential in the future. Market demand for generator sets exceeds that of marine medium speed engines. In 2013, the gross margin of the company's power generation equipment increased by 2.2 percentage points, and profitability increased. The company began to integrate downstream OEM manufacturers through capital and channel networks; the company concentrated on expanding its business in customer markets in communications, petroleum, mining, data centers and other industries, as well as domestic and foreign high-power fuel and gas power plant markets. Zhonggao Power, one of the company's competitors, Zhonggao Heavy Industries, has received orders for power generation equipment from overseas in recent years totaling about 3 billion yuan; the company's current executive general manager is the former general manager of Zhonggao Heavy Industries. 3. Investment recommendations The company's net interest rate in 2013 was only 1.7%. It will benefit from state-owned enterprise reforms in the future, and its performance is flexible. The 2014-2016 EPS is expected to be 0.35/0.52/0.75 yuan, PE is 24/16/11 times; maintain the “recommendation”. Risk warning: There is a risk that high-power diesel engines are progressing less than expected, and demand for inland waterway shipping will decline.