Baoding Heavy Industries (002552): Darkness before dawn, performance ushered in an inflection point (increase in holdings): 1. The company recently announced that its investment in the establishment of Baoding Small Loan Company was approved. 2. The company announced a year-on-year decrease of 72.7% in net profit in 2013. Comment: Using small loan companies to enter the quasi-financial industry. The company's microfinance company was approved with a registered capital of 200 million yuan, and the company accounted for 30%. It is expected to contribute 9 million yuan in revenue to the company. The main business is about to bottom out and pick up. The company's net profit in 2013 fell 72.7% year on year. 2013 was the company's lowest performance in five years. With downstream improvements, we judge that the company's performance will bottom out and pick up. The company's advance accounts for the first three quarters increased by 30.4% year-on-year, which to a certain extent indicates an improvement in the company's orders. Company Strategy: Increase shipping, offshore and military business. The company is a leading large-scale casting and forging manufacturer in the domestic shipbuilding, offshore and military industries. The future strategy is to increase the share of shipbuilding, offshore, and military businesses. Downstream 1: Ship parts lag behind the recovery in ship orders. The global shipping and shipbuilding market picked up markedly in 2013, and industry revenue is expected to rise steadily from mid-2014. However, the ship parts industry where Baoding Heavy Industries is located is lagging 1-2 years behind ship orders and beginning to recover in 14 years. The company's performance is expected to rise sharply and enjoy a period of rapid growth of more than 3 years. Downstream 2: The offshore business has large orders, becoming the company's second growth point. In 2013, China undertook 11.5 billion US dollars of various offshore engineering equipment projects. With the gradual commencement of these offshore projects, the demand for offshore casting and forging parts will also increase. Currently, the company's offshore business orders are growing rapidly, and it is already directly supplying national oil wells. It is expected that there will be rapid growth in 2014. Downstream 3: The military industry has proven its strength and is about to begin scaling up. The company is applying for a military product manufacturing license. It is expected to be obtained in the first half of '14, and the gross margin of the military business is high, and volume will begin in the second half of '14. Profit forecast and investment advice: The company currently has a market capitalization of only 1.8 billion yuan and a cash book of 210 million yuan. It is predicted that the company's EPS for 2014-2015 will reach 0.30 and 0.50 yuan respectively, and the corresponding PE will be 39 and 24 times, respectively, giving it an “increase in holdings” rating for the first time.