Incident Company has published its 2012 annual report. In 2012, the company achieved operating income of 1,822 million yuan, a year-on-year decrease of 16.5%; net profit attributable to owners of the parent company was 276 million yuan; a year-on-year decrease of 20.38%. Basic earnings per share for the year are $0.39. Key investment points Demand for small to medium size products is strong, and the company's small to medium size production capacity was expanded to 2.1 million pieces/month. The company's quarterly performance was affected by seasonal factors, which affected the annual performance. According to the quarterly data, the company's quarterly revenue was 495 million yuan, up 16.73% year on year; net profit attributable to parent company owners was 207.044 million yuan; down 65.55% year on year. Notably, the parent company received 44.57 million yuan in revenue from the sale of 206 base properties and land. The product structure has been adjusted to a certain extent, and the price of the module business has fluctuated slightly. During the reporting period, market demand for large-size flat panel display products was stagnant, and the prices of corresponding terminal products continued to weaken, which indirectly affected the company's LCD module OEM prices. On the other hand, the company's product structure has been adjusted, mainly because the company has transformed the idle large module production line into a small to medium size production line. We believe that as adverse external conditions gradually subside, the traditional module business will experience a gradual improvement process. Increased profitability: The gross margin level remained stable, the level of expenses during the period fell, and gross margin remained stable throughout the year, and the gross margin declined in a single quarter. In 2012, the company's consolidated gross margin was 35.69%, down 0.08 percentage points from the previous year; the company's consolidated gross margin for the fourth quarter was 21.07%, down 44.57 percentage points from the previous year, down 11.81 percentage points from the previous year. We believe that the reasons for these changes are mainly changes in orders and prices for LCD modules commissioned processing. It is expected that with the decline of short-term supply and demand factors and the disappearance of seasonal factors, the company's LCD module business is expected to gradually improve. During the reporting period, the company's period expense ratio was 15.38%, up 3.73 percentage points year on year; among them, the cumulative sales expenses rate at the beginning of the year was 0.75%, down 0.27 percentage points year on year. The main reason for the change in sales expense ratio is the reduction in transportation and customs clearance costs for subsidiary Huaying Video products. The Fuzhou touch component project provides the company with room for performance growth. The company's future development direction: based on LCD modules, the strategic layout of touch components and integrated touch products. At present, the theme plant for the touch component material (cover glass) project invested by the company has been completed, the equipment is entering the factory, and the kiln has been ignited and commissioned. As late-stage equipment is gradually put in place, we expect the company's corresponding products to drive rapid revenue growth. Furthermore, the company has completed the acquisition of 20% of Huaying Optoelectronics's shares (current shareholding ratio is 40%). It is expected that the company will further acquire Huaying Optoelectronics's shares and eventually achieve shareholding. Investment recommendations We expect basic earnings per share for 2013-2015 to be 0.61 yuan, 0.76 yuan, and 0.99 yuan, respectively, and corresponding price-earnings ratios of 30.2 times, 24.6 times, and 18.7 times, respectively. We are optimistic about the performance growth potential of the company's touch component business and maintain a “recommended” investment rating. Risks suggest that competition in the LCD panel module processing business is intensifying.