Net profit declined significantly, and the results for the third quarter fell short of expectations. In the first three quarters, the company's operating income was 1,622 million yuan, up 5.5% year on year; operating profit was 41.3 million yuan, down 45.3% year on year; net profit attributable to parent company was 37.82 million yuan, down 47.7% year on year; corresponding EPS was 0.14 yuan. Q3's quarterly revenue was 508 million yuan, up 18.2% year on year, operating profit was 5.5 million yuan, down 64% year on year, and net profit attributable to parent company was 5.7 million yuan, down 65.5% year on year. The corresponding EPS was 0.02 yuan. The decline in gross margin led to a sharp decline in Q3 quarterly results. Traditional business is still sluggish, and orders for high-power engines have begun to be delivered. Affected by the continued decline in China's inland waterway shipping freight rates and traffic volume, the inland waterway shipbuilding industry is sluggish, and the company's traditional marine engine sales are relatively stable. However, some orders for high-power marine engines have already begun to be delivered. We estimate that orders for large aircraft projects have been delivered of about 70 million yuan, and 56 million yuan for the third quarter, mainly law enforcement ship orders signed at the end of last year and the first quarter of this year. Revenue growth in the Q3 single quarter has begun to pick up, and it is estimated that this year's aircraft orders will be delivered over 100 million yuan. The decline in net profit increased due to the decline in gross margin and the increase in the expense ratio. In the first three quarters, the company's consolidated gross profit margin was 10.6%, down 1.2 percentage points from the previous year and 0.4 percentage points from the second quarter. The decline in gross margin was mainly due to rising labor costs, and the gross margin of mainframe orders already delivered in the last year and the first quarter was in loss; at the same time, sales expenses increased by 90%, and the period expenses increased by 1.5 percentage points to 8.3%. The net profit decline continued to expand from the second quarter due to the increase in the cost ratio. Large-scale orders may drive a reversal in performance next year. In the first three quarters, the company had orders of 273 million yuan in hand and signed new orders of 14.5 million yuan. It is estimated that the confirmation of CNOOC's offshore auxiliary ship order was delayed until the fourth quarter. In order to ensure on-hand and on-time delivery of new orders, the company has purchased high-end components from abroad ahead of schedule, and inventory has increased by 85.7%. Orders for high-power engines will drive a reversal in next year's performance. Maintain a “buy-B” rating. Large aircraft order delivery losses are large. The company's net profit from 2013 to 2015 is estimated to be 54.2 million yuan, 127.7 million yuan, and 204.8 million yuan, corresponding to EPS of 0.20 yuan, 0.46 yuan, and 0.74 million yuan. High-power engine orders will drive a reversal in 2014 performance, maintaining the buy-B investment rating, with a target price of 10.6 yuan for 6 months. Risk warning. Delivery of large aircraft orders is progressing less than expected; risk of rising raw material prices.