The company is an indirect holding enterprise of Arms Industry Group and the largest nitrocellulose production enterprise in the world, with a capacity of 49000 tons / year for nitrocellulose and 15000 tons / year for wood pulp meal. With H-type, L-type and energy-containing nitrocellulose and other products. Guangzhou Kaiming, a holding subsidiary, distributes TDI products and also contributes part of its income.

In 2011, the operating income was 1.911 billion yuan, up 42.21% from the same period last year; the operating profit was 37.0058 million yuan, up 56.86% from the same period last year; the net profit of shareholders belonging to listed companies was 32.4908 million yuan, up 50.16% from the same period last year; and the basic income per share was 0.1642 yuan, which is more in line with our previous expectations. At the same time, the company's estimated net profit belonging to shareholders of listed companies in the first quarter of 2012 is 10-300000 yuan, down 90% from the same period last year.

The performance improvement comes from the support of high cotton prices in early 2011 and the grasp of the rhythm of product price adjustment, and the future depends on the latter. The company's 2011 performance growth does not come from the increase in volume, the company's annual production and sales of nitrocellulose-related products only achieved 87.90% and 83.26 of the target. This is due to the continued decline in downstream demand.

In the first half of 2011, cotton prices continued to rise, and the company seized the cost support of high cotton prices to control the price adjustment rhythm of products. When cotton prices declined, the company took advantage of its industry position to delay the downward trend of product prices, resulting in a substantial increase in the company's annual operating income and operating profit compared with the same period last year. However, we believe that the company's high cotton price support has disappeared, and the control of product prices will be the key to future performance.

The cash flow of business activities declined rapidly. Affected by the tightening of the national monetary policy, the balance of acceptance bills increased by 70.15 million yuan at the end of 2011 compared with the same period last year, and the amount of cash collected decreased, resulting in a 76.16% decrease in net cash flow from the company's operating activities. We expect things to improve slightly in 2012.

The transfer of shares in Guangzhou Kaiming and abandoning the capital increase will have a certain impact on future performance. The board of directors of the company passed a motion on March 23, 2012, reducing the proportion of shares in Guangzhou Kaiming from 90% to 5%. 85% of the shares were transferred to Beihua Group (35%) and Huajin Group (45%), respectively, and proposed to give up the capital increase of Guangzhou Kaiming. This bill does not need to be submitted to the shareholders' meeting. The purpose of the transfer of the company is to reduce the quota of related party transactions and is committed to the main industry-related industries. After the completion of the transfer of equity and abandoning the capital increase, Guangzhou Kaiming will no longer be a holding subsidiary of the company and will no longer be included in the consolidated scope.

In 2011, Guangzhou Kaiming's operating income and net profit accounted for 59.59% and 7.46% of the company's annual income, which we believe will have a certain impact on the company's future performance.

Non-public additional issuance awaits SASAC's approval. The company's non-public offering of shares is still subject to the approval of the State-owned assets Supervision and Administration Commission, and the company recently cancelled an interim shareholders' meeting scheduled for March 9.

Profit forecast and investment rating. We do not consider the impact of non-public offering projects (such as the pump industry) on the future of the company, carry out neutral expectations on the prospect of nitrocellulose, and conservatively estimate the prospect of the company. It is expected that the company's earnings per share from 2012 to 2013 will be 0.16 yuan and 0.12 yuan, respectively. According to yesterday's closing price, the corresponding dynamic price-to-earnings ratio is 75 times and 101 times respectively, maintaining the company's "neutral" investment rating.

Risk hint.

(1) the risk of exchange rate fluctuation; (2) due to the particularity of the product, there is a safety risk in the production process; (3) the risk of raw material price fluctuation; (4) the risk of failure of private placement.