Key investment points High permeability molded paper is in a period of explosive growth in demand. The National Tobacco Administration requires that the tar content of cigarettes be reduced to less than 10 mg in 2015. However, filter ventilation technology is the most direct and effective focus reduction technology. Using high permeability molding paper of 12,000 CU or more, the focus can be reduced by 30%, and low coke smoke of 8 mg or less will not be able to meet the content requirements without using high permeability molding paper. As the lower limit of tar content continues to decrease, the next three years are expected to usher in a demand explosion period for high-permeability molded paper. When the promotion ratio reaches 80%, the annual demand for high-permeability molded paper is expected to reach 36,000 tons, while the market supply is expected to be less than 20,000 tons by the end of 2012. Direct plating vacuum aluminized paper is expected to become the mainstream of cigarette liners. The aluminum consumption of vacuum aluminized paper is only 1/200 of that of aluminum foil backing paper, and the cost of use per unit area is already lower than that of the former. Among the two implementation methods of vacuum aluminized paper, the direct plating method does not consume PET or BOPP film, has better environmental performance, and is expected to become mainstream technology. It is estimated that when the promotion ratio reaches 80%, the demand for raw paper will reach 126,000 tons. The company's production capacity will expand in the next 2 years, and the growth point is clear. High-permeability molded paper and direct-plated vacuum aluminized base paper have room for rapid growth in China. The company has leading domestic technical reserves in both projects. Active expansion of production capacity can consolidate the first-mover advantage in these two fields and enjoy the increase in sales volume brought about by the explosion in demand. The next two years are expected to benefit from a downturn in the cost center. Due to weak demand in the bulk paper industry, international pulp prices are still hovering at the bottom, and Brazil has still invested 10 million tons of production capacity after 2013. We expect that the cost of wood pulp will remain low in the next 12 or 13 years may be a probable event. As an established paper company, the company has always been good at using a flexible raw material reserve mechanism to fully enjoy the increase in gross profit brought about by falling pulp prices. For the first time, finance and valuation gave the company an increase in holdings rating. Without considering the conversion of convertible bonds, we expect the company's earnings per share for 2012-2014 to be 0.43, 0.54, and 0.61 yuan respectively. Referring to the company's historical average valuation level and taking into account the growth brought to the company by large-scale production capacity expansion, the company was given a price-earnings ratio of 18 times, corresponding to the target price of 7.74 yuan, giving the company a rating of increasing holdings for the first time. Risks suggest that the price of raw wood pulp has risen sharply; sales of paper products with new production capacity, such as vacuum aluminized liner paper and high-permeability molded paper, have fallen short of expectations; market competition has intensified, and competitors such as China Tobacco Modi have accelerated production capacity investment, creating pressure on price competition.