The company achieved operating income of 1,661 billion yuan in 2011, an increase of 26.12% over the previous year, and realized net profit attributable to owners of the parent company of 138 million yuan, corresponding to earnings per share of 0.52 yuan, an increase of 1.7% over last year. The company's gross margin in 2011 was 21.85%, down 0.94 percentage points from 2010, while the net profit margin fell 2 percentage points to 8.32%. Without considering the dilution of share capital, we expect earnings per share of the company's coal machine business to be 0.78 yuan and 0.93 yuan respectively, 18 times the 2012 price-earnings ratio, corresponding to the stock price of 14.04 yuan; the company's lifecapsule business is expected to contribute 0.09 yuan per share, giving a price-earnings ratio of 23 times, corresponding to a price-earnings ratio of 2.07 yuan. The coal business is expected to contribute 0.05 yuan per share in earnings of 0.05 yuan, converted from annual coal output and the year in which it can be mined. Based on the above analysis, we lowered the target price to 18.63 yuan, corresponding to the 2012 price-earnings ratio of about 20 times, and maintained the buying rating. Key points supporting ratings In the first quarter of 2012, the company achieved operating income of 297 million yuan, a year-on-year decrease of 9.9%, and realized net profit attributable to owners of the parent company of 24.036 million yuan, a year-on-year decrease of 4.94%. In the first three months of 2012, the company's gross margin level increased by 3.63 percentage points to 25.03%, and the net profit margin also increased by 0.42 percentage points to 8.07%. Mainly due to the reduction in the company's operating costs, the margin for gross profit has been freed up. It is expected that the large-scale promotion of new products in the future will greatly improve the margin for gross profit. However, the sharp increase in accounts receivable has had a great impact on the quality of the company's profits. Long-distance markets such as Yunguichuan, where the company focuses on thin coal seam products, are growing rapidly, and freight rates have increased significantly. In 2011, sales expenses increased by 28.27% compared to the previous year; in addition, due to factors such as the continuous expansion of business scale and the increase in management remuneration, management expenses increased by 66.85% over the previous year. In the first quarter of 2012, these two expenses did not increase much year-on-year, but their share of operating income each reached a high point in recent years, and the pressure on the company to control expenses will increase in the future. In 2011, the gross profit margin of hydraulic bracket products was 13.9%, a decrease of 5.95 percentage points. Although the company began active product restructuring in the second half of the year and reconfigured part of the production and sales capacity of hydraulic brackets, the decline in the gross margin of this product still affected the decline in the company's overall gross margin level throughout the year. The increase in the company's accounts receivable in 2011 was significantly greater than the increase in revenue, an increase of 66.39% over the same period last year, which affected the company's profitability. The company has introduced new mining equipment, and the complete set of comprehensive mining equipment has been improved. In line with the lifeboat and coal business to be launched this year, the company's gross margin level will recover significantly. The main risks facing ratings are the risk of increased competition and the risk of a decline in fixed asset investment in the coal mining and washing industry. Valuation The current price war for coal machinery products is coming to an end, and excess production capacity will be gradually converted or digested. It is expected that the company's coal machine business will pick up markedly this year. Considering the development of the company's new businesses such as coal mining machines, tunneling machines, and lifeguards, and the impact of coal mining operations, the company's performance this year will have a major breakthrough. Without considering the dilution of share capital, we expect the company's coal machine business to earn 0.78 yuan and 0.93 yuan per share in 2012, respectively, giving 18 times the 2012 price-earnings ratio and corresponding share price of 14.04 yuan. The company's lifehull business is expected to contribute 0.09 yuan per share in earnings of 0.09 yuan per share, corresponding to the stock price of 2.07 yuan, and the coal business is expected to contribute 0.05 yuan per share in terms of the amount of coal produced per year mining The yearly converted value per share is $2.52. Based on the above analysis, we lowered the target price from 19.02 yuan to 18.63 yuan, corresponding to the 2012 price-earnings ratio of about 20 times, and maintained the buying rating.