Incident: On Friday, the stock price of Junzhi Group (1300 HK) fell sharply due to rumors of financial fraud, major shareholders pledging shares, and reducing their holdings. The company held a conference call after closing; the minutes are as follows: The rumor was denied: The management denied rumors about financial fraud and equity pledges by major shareholders. The chairman stressed that there are no plans to lend or reduce stock holdings; there are plans to increase shareholding in the short term. Recent business progress has been good: Management said that orders from China Mobile (the company's largest customer, accounting for more than 50% of revenue) have been strong recently, and the business prospects for the second half of the year are promising. At the same time, after allotment of shares in October, the company's operating cash flow and net debt level (down from about RMB 640 million to 340 million in the middle of the year) improved markedly; the company expects operating cash flow to be positive by the end of the year (operating cash flow of -206 million in the middle of the year). Furthermore, the company is confident that it will maintain the current level of gross margin and that there is room for improvement in operating efficiency. Benefit from the 4G investment cycle: Communications equipment companies often face tight cash flow conditions in the middle of the year, and operators usually make large-scale repayments at the end of the year. Meanwhile, the second half of the year was the peak of capital expenditure execution for traditional operators; in particular, mobile aims to build 200,000 4G base stations this year. The company's growth prospects for the second half of the year remain positive. Attractive valuation: Maintain the 2013/14/15 profit forecast at RMB 0.30/0.36/0.41; the target price based on the DCF model is HKD 3.9, which is equivalent to 10.4/8.6 times 13/14PE. After a sharp correction in stock prices, the current valuation is about 5.8/4.8 times 13/14PE. The valuation is attractive and maintains a buy rating. Catalysts: 4G licensing is approaching, operators' 4G capital expenditure execution is accelerated; 4G poses a risk that the second half of the year's performance will exceed expectations: 4G licensing and the delay in operators' 4G capital expenditure; increased competition has brought pressure on ASP higher than expected