Main points of investment:

The annual report is basically in line with expectations, and the high economy in the first quarter will continue. The company's 2009 annual report achieved sales revenue of 1.959 billion yuan and net profit attributed to the parent company of 1.959 billion yuan and 76 million yuan respectively, down 7.0% from the same period last year and an increase of 45.9%, equivalent to 0.63 yuan of EPS, which is basically in line with our expectations. Net profit growth is much higher than income growth, mainly due to a reduction in investment losses in 2009 compared with 2008 and a 2.6 percentage point increase in gross profit margin. At present, the company's welding products maintain a high degree of prosperity, on the one hand, it comes from the strong demand for welding materials brought about by the rapid growth of investment in fixed assets, on the other hand, the increase of high gross profit products represented by the company's flux-cored wire and nuclear welding materials has also improved the company's overall gross profit margin and enhanced the company's comprehensive profitability. In terms of dividend distribution, the company plans to distribute cash of 1.6 yuan (including tax) for every 10 shares in 2009.

The output in 2009 is about 360000 tons, and the output in 10 years is expected to reach 400000 tons, and the gross profit margin is expected to remain stable. In 2009, the company achieved an output of 250000 tons of electrode, 100000 tons of welding wire (including 10, 000 tons of flux-cored wire) and 10, 000 tons of flux. the company plans to achieve an output of 400000 tons of welding materials in 2010, an increase of 11% over the same period last year. Gross profit margin is expected to remain at around 15%. The welding material of the third generation nuclear power AP1000 steel containment shell (SA738B steel plate) of the Atlantic Ocean won the bid for the first time to achieve a breakthrough in the localization of nuclear power island welding materials, which is of great industrial significance, making the company one of the world's first-class comprehensive suppliers of nuclear power welding materials. According to our understanding, the gross profit margin of ordinary nuclear power welding materials is 25% Mel 30%, while the gross profit margin of nuclear power island welding materials is expected to be as high as 40% MUE 50%. According to the total nuclear power investment of 8000-1 trillion in the next 10 years, the annual demand for nuclear power welding materials is expected to reach 200-400 million yuan, and the market space is huge.

Robust varieties, low valuation, maintain the "overweight" rating. We appropriately adjust the company to EPS0.63, 0.85 and 1.01 yuan in 2009-11, corresponding to 22 and 19 times PE in 10 and 11 years, which is still at a low valuation level, and is still expected to achieve stable growth in the next two years. Coupled with the company's global competitive advantage in the field of nuclear welding materials, we believe that the company's future comprehensive growth space is still broad, maintaining the "overweight" rating, with a target price of 21.2 yuan, corresponding to 25 times PE in 2010.