As presented in our August 2, 2011 newsletter, the company announced on August 2, 2011, that it has approved an investment of approximately RMB 350,000,000 to develop the polyester film business, which involves the manufacture and sale of multi-functional BOPET (preliminary plan). While initial plans are currently under construction, the company is pleased to announce that it has approved a further investment of approximately RMB 1,586,700,000 in an expansion plan (expansion plan).

Together with the investment of RMB 350,000,000 approved in the company's previous preliminary plan, the company's total investment in BOPET and BOPET slice production facilities is expected to be RMB 1,936,700,000. The additional investment under the expansion plan will be funded by funds generated within the company and cash from the business operation of BOPET's production facilities after the completion of the preliminary plan anticipated in May 2012. The expansion plan is expected to involve capital expenditure of approximately RMB 1,252,600,000 and additional investment of approximately RMB 334,100,000 in additional working capital.

The company expects the expansion plan to gradually enter commercial production in 2014. After the initial plan and expansion plan are completed, the company expects that it will have an annual production capacity of about 255,000 tons of BOPET polyester melt, which will be directly used for (i) BOPET production (total annual production capacity of about 182,500 tons) and (ii) production of BOPET slices (total annual production capacity of about 72,500 tons).

We maintain our 'buy' rating and target price of HK$6.80. We believe Baihong Industrial's plans to expand the BOPET business will benefit the company by diversifying the company's revenue sources. The company's current price is HK$4.47, which is equivalent to 9.0 times 2011 PE and 1.4 times 11 times PB.