The company is a leading enterprise of Roots blower in China. The company's main products are fans and accessories, mills, slurry pumps, pneumatic conveying and electrical equipment, fans contribute about 70% of the company's profits. The mill is mainly used in the building materials industry, the slurry pump is mainly used in the coal industry, the pneumatic conveying products are mainly used in the pneumatic conveying industry, and the electrical equipment is the supporting products of fans and mills. The company's leading products Roots blower, Roots vacuum pump and supporting products, which are widely used in sewage treatment, power plant desulphurization, pressure swing adsorption, aquaculture, metallurgy, iron and steel, cement, coal chemical industry, electric power and other industries.

Affected by the shrinking demand in the downstream industry, the company's performance declined in the past two years, but thanks to increased demand in the environmental protection sector, the company's orders grew positively from January to February 2014 compared with the same period last year. The company disclosed its performance in 2013, KuaiBao, and estimated that the company's operating income in 2013 was 567 million yuan, down 10% from the same period last year, due to the decline in demand in the main downstream industries of the company, such as steel, cement, coal, etc., and the net profit attributed to the parent company was 81.77 million yuan, down 6% from the same period last year. The company's results declined somewhat in 2012 and 2013, and the year-on-year growth rate was gradually improving, with revenue and net profit growing positively for the first time since 2012 in the fourth quarter of 2013. Benefiting from the growing demand for fans for downstream sewage treatment and desulphurization, we expect the company's orders to grow by about 20% from January to February 2014.

The government has strengthened the control of sewage treatment, and the demand for fan products of the company has increased steadily. The company's Roots blower and centrifugal blower are the basic equipment for blowing oxygen and aeration in the biochemical reaction and backwashing process of water treatment process, which are mainly suitable for point source sewage treatment such as chemical industry, building materials, food and so on. it is also suitable for sewage treatment plants in small cities. At present, Jin Tongling's core product single-stage high-speed centrifugal blower is more suitable for municipal sewage treatment, while the company's core product Roots blower is more suitable for point source sewage treatment with less treatment capacity. In order to further develop the market in the field of municipal sewage, the company has signed its centrifugal blower agency contract with Korean enterprises in China to provide air suspension centrifugal fans with higher stability and stronger energy-saving effect for municipal projects. in the future, the company will gradually open up the municipal sewage treatment market by increasing cooperation with design institutes and engineering companies. In addition, the company can further expand its revenue in the future by undertaking sewage treatment EPC projects and reproducing mobile sewage treatment equipment according to market demand (the company's subsidiaries once produced it, but the market demand was not good at that time, and then production stopped).

The desulphurization management of the power plant is becoming stricter, and the transformation of the desulfurization tower increases the demand of Roots blower. The desulphurization management of the power plant is becoming more and more strict. through the transformation of the desulfurization tower that has been built, the sulphide emission is further reduced. The transformation of the desulfurization tower is mainly carried out by raising the desulfurization tower and deepening the chemical liquid pool, which makes it necessary for the gas to blow into the desulfurization tower from the bottom of the desulfurization tower, that is, the Roots blower with higher boost pressure is needed, which gives rise to the demand of the company's products. The greater the boost pressure, the higher the technical requirements for the Roots blower, and the greater the benefit of the leading company in the Roots blower industry. As the government strengthens the control of haze, the demand for retrofitting and new construction of desulfurization devices in the power, steel, non-ferrous and chemical industries is expected to continue, supporting the performance growth of the company's blower products.

Epitaxial development provides the company with high growth possibility. Compared with the company's core product blower 2 billion market space, centrifugal blower 10 billion market space is broader. Although the company has been engaged in R & D and production in the field of centrifugal blower for more than 10 years, there is still a certain gap between its technology and the domestic advanced level. In the future, the company is expected to achieve the rapid growth of the company's extension through the acquisition of centrifugal fans in sewage and desulfurization related fields.

Profit forecast and investment advice: we expect the company's EPS for 13-15 years to be 0.26,0.31 and 0.36 yuan respectively, with net profit growth rates of-6%, 18% and 17% respectively, corresponding to 28 times and 23 times PE for 13 and 14 years, respectively.

The company is the leading enterprise in the domestic Roots blower industry, with a current market share of about 20%. Under the background of shrinking demand for blowers in the traditional downstream industries such as metallurgy and chemical industry in the past two years, the company's performance has shown negative growth. The company is expected to improve its performance in the future through three aspects: 1) since 2013, orders for blowers in the downstream environmental protection industry (sewage treatment and desulphurization) have grown steadily and rapidly, with revenue of about 100 million yuan in 2013 (contributing about 20% of the company's gross profit). With the gradual increase in the intensity of government treatment of sewage and air pollution, the demand in the field of environmental protection will continue to improve the performance of the company. 2) through epitaxial development, the company is expected to further seize the centrifugal blower market or open up a new compressor market, which will effectively promote the rapid improvement of the company's performance; 3) the company is developing low-cost Roots blower products. In the process of putting it on the market in the future, it will recover some of the markets that the company has lost in the past two years, which will have a positive impact on performance growth. We cover the company for the first time, giving the company an "overweight" rating.

Risk hints: the demand for blowers in metallurgical and chemical industries has dropped sharply, and the treatment of sewage and air pollution by national policies is not up to expectations.