1. Overview of the incident Ruiling Co., Ltd. released its 2013 interim report on the evening of August 19: Achieved operating income of 335 million yuan, down 11.51% from the same period last year; realized net profit attributable to owners of the parent company was 4.481 million yuan, an increase of 4.48% over the same period last year, and achieved an EPS of 0.21 yuan, which is basically in line with the performance forecast and is in line with market expectations. The EPS for 13-15 is expected to be 0.39, 0.52, and 0.75 yuan respectively, maintaining the “prudent recommendation” investment rating, and rising to 11-13 yuan according to the reasonable valuation of 30 times PE in '13 and 20 times PE in '14. 2. Analysis and judgment: Investment demand in the affected manufacturing industry is still weak. Revenue in the first half of the year fell 11.5% year on year to achieve operating income of 335 million yuan in the first half of the year, down 11.51% from the same period last year. Among them, inverter welding equipment and welding automation products fell 9.76% and 54.42%, respectively, and domestic sales fell 24.64% year on year, but exports increased 29.01% year on year (export revenue accounted for 34.2%). The company's main business is inverter welding machines. The industry was driven by inverter welding machines, which replaced traditional welding machines 11 years ago, but in recent years, as the substitution effect weakens, competition becomes more intense, and the growth rate of investment in the manufacturing industry declines, the industry has entered a sluggish cycle. However, the company excels in its technical strength and maintained a comparative advantage during the industry downturn. A slight increase in gross profit and cost control led to a 4.5% year-on-year increase in net profit attributable to owners of parent companies in the first half of the year, an increase of 4.48% over the same period last year, which was significantly higher than revenue growth. The main reasons were: (1) Due to factors such as falling raw material costs, gross margin increased from 26.18% in the same period last year to 27.54%; (2) due to strong cost control, the three cost rates fell to 10.54% from 12.25% in the same period last year. Management improvements began to be effective during the industry downturn cycle. There has been an improvement in cash flow, which proves that the company's management has improved. It is expected that the net cash flow from operating activities in the first half of the year will continue to flow in the first half of the year (net outflow of 100 million yuan in the same period last year), mainly due to strong receivables and inventory control. The improvement during the industry downturn is quite obvious, indicating that the company's internal management has improved significantly. 3. Profit Forecast and Investment Suggestion The company's current main business will remain steady, but its core logic is that the market capitalization is small but there is a lot of capital on hand (1.1 billion dollars in hand at the end of the 13H1 period, market value of 2.4 billion after closing in 2013-8-19). ROE is at the lowest level in history, and there is plenty of room for improvement in the future. We expect EPS for 13-15 to be 0.39, 0.52, and 0.75 yuan, respectively, to maintain the “prudent recommendation” investment rating, and increase the reasonable valuation to 11-13 yuan according to 30 times PE in '13 and 20 times PE in '14. 4. Stock price catalysts and risk alerts Risk warning: 1. Domestic economic recovery is weak, and investment in manufacturing falls short of expectations; 2. Gross profit declined due to intense market competition. Stock price catalyst: Increased efficiency of capital utilization; domestic demand or exports exceeding expectations.