Core Views Annual Report: Danhua Technology achieved operating income of 1.1 billion yuan in 2012, an increase of 98% over the previous year; net profit of 27.75 million yuan, which reversed losses; net profit after deducting non-recurring profit and loss was -137 million yuan, with basic earnings per share of 0.0356 yuan. Comment: 1. Recovery of bad debt losses is the main reason for reversing losses. The company recovered the full amount of lawsuits already charged for bad debts, reduced asset impairment losses, and recovered 204 million yuan from bad debt losses, which was the main reason for the company to reverse losses. 2. Significant increase in sales expenses: The company's sales expenses in 2012 were 63.87 million yuan, an increase of 4 times over the previous year, mainly due to the increase in storage costs, transportation costs, wages, benefits and repair costs of the subsidiary Tongliao Gold Coal. 3. Ethylene glycol production has increased dramatically, and profits are still not optimistic. The subsidiary Tongliao Gold Coal has a total production capacity of 200,000 tons of ethylene glycol, an increase of 200% over the previous year; the gross profit margin was 1.66%. Through cost analysis, the depreciation and labor cost of ethylene glycol is 6,000 yuan/ton; the sales price is 6,200 yuan/ton, which is lower than the 2012 market average price of 6,640 yuan/ton (excluding tax). 4. Progress of the ethylene glycol project in Henan: Two 200,000 ton projects in Xinxiang and Puyang have completed investment, with a production load of 50%, and UV transmittance of up to 60% and an average of 75% at 220nm; the Anyang and Yongcheng projects have completed more than 90% of the investment and are currently being tested. If the first two projects are successfully sold, depreciation and amortization costs can be reduced by about 700 yuan. The sales price is still discounted by 500 yuan/ton according to the market price, and the gross margin can reach 15%. 5. What can be expected: Improved product quality, reduced discount with market prices; increased operating rate, reduced amortization costs; Henan project progressed smoothly, reducing depreciation and labor costs. 6. Production of acetic anhydride will stop: The holding subsidiary Danhua Acetic Anhydride stopped production in the second half of the year to reduce losses. A total of 14,200 tons of acetic anhydride were produced this year. 7. Profit forecast: According to the 50% operating rate of the Henan 2 project in 2013, the 80% operating rate of Tongliao, the sales price discount is 400 yuan/ton; the 50% operating rate of the Anyang and Yongcheng projects in 2014, Xinxiang, Puyang, and Tongliao are all calculated at 80% operating rates. The company's EPS for 2013-2014 is expected to be 0.35 yuan and 0.71 yuan, respectively. The company will build a production capacity of 1.2 million tons in the future, with equity production capacity of 380,000 tons, and high performance flexibility. 8. Risk warning: Uncertainty still comes from the stability of operating rates.