Investment logic: Domestic low-tar cigarettes began to explode: in 2011, the country's total cigarette sales volume was 48.31 million large boxes, and the sales volume of low tar cigarettes was 3.3 million cases, up 365.7% year on year; in January-February 2012, low tar cigarettes achieved sales volume of 1.128,900 boxes, an increase of 213.70% over the previous year; in the dilemma of “tobacco control” and financial dependency, the government promoted cigarette “reduction” as an inevitable choice: the international and domestic “tobacco control” campaign was on the rise. In 2011, the tobacco industry handed over 60.118 billion yuan to the country's total fiscal revenue, accounting for 5.78 billion yuan in the country's total fiscal revenue %; The State Tobacco Administration stipulated that the amount of tar in cigarettes in 2011 should not exceed 12 mg/stick, and in 2015 no more than 10 mg/stick; high-permeability paper is an indispensable technical means for “focus reduction”, and domestic production capacity is scarce: Cigarette focus reduction mainly uses high-permeability filters. High-permeability paper is the core material for the production of high-permeability filters; currently, only Hengfeng Paper and China Tobacco Modi; Hengfeng Paper's exclusive feast: The company produced and sold 7,000 tons of high-permeability paper in 2011, accounting for 80% of the domestic market share in 2012. Production capacity will be expanded separately in 2013 To 10,000 tons and 16,000 tons; during the same period, competitors did not expand their production capacity on a large scale, and at the same time, the company will fully enjoy the benefits of the industry with its leading edge in technology and product stability. Profit forecasts, valuations and investment recommendations forecast Hengfeng Paper's 2012-2014 diluted EPS (considering full conversion of convertible bonds) to $0.433, $0.584, and $0.686. We believe that the company should be given a higher valuation than that of ordinary paper companies for the following reasons: the company has an obvious advantage in expanding production capacity, and there is a high degree of certainty that it will enjoy the benefits of the high-permeability paper industry driven by the launch of the low-tar cigarette market. Unlike the strong cyclical characteristics of other paper companies, the downstream of the company is the tobacco industry where sales and profits are very stable and can cross the cycle, and international pulp supply and demand began to enter a cycle of excessive supply in 2011. Pulp prices will be stable in the next 2 years, and the probability of increase is very low; these factors make Hengfeng Paper's operations in the next 2 years less cyclical. Based on the above reasons, Minfeng special paper with abnormal valuations was removed, and the company was given 22x12PE and 18x13PE, with a target price of 10.50-10.82 yuan. It is recommended to buy them. Risky pulp prices have fluctuated greatly; competitor product development has exceeded expectations, and competition in the industry has intensified.