Basic conclusion The company's products are permanent magnet switches, high and low voltage switch cabinets, electronic energy meters, and highway guardrails. Among them, permanent magnet switches account for 44% of revenue, and fund-raising projects will increase production capacity by more than 200%; short-term permanent magnet switches have strong profitability, but we judge that gross margin will decline: the permanent magnet circuit breakers produced by the company are emerging high voltage switch products, with gross margins of 63.0%, 63.7%, and 61.2%, respectively, from 2008 to 2010. However, we believe that as other companies enter this market one after another and participate in competition, the company's high gross margin will be difficult to maintain; there are certain replacement opportunities for permanent magnet switches, and the industry will maintain steady growth: compared with traditional spring mechanisms, permanent magnet actuators have certain advantages in reliability, service life, and maintenance costs. Permanent magnet switches are suitable for large-scale industrial and mining enterprises with frequent operations and other electricity consumption fields, such as steel, chemicals, coal, etc. Currently, permanent magnet switches account for only 5% of the overall high voltage field, so there is some room for replacement. However, due to downstream growth bottlenecks and special application areas, we judge that the permanent magnet market will not experience explosive growth in the short term, and overall demand will remain stable. It is estimated that the market capacity of permanent magnet switches will reach 2 billion yuan in 2015; the leader in the field of permanent magnet switches in China still has a project-led sales model in the short term: currently, the company's share of the domestic permanent magnet switch market is 22%, which has a certain first-mover advantage. However, the company's sales model mainly sells directly through end customers and then sells products to complete equipment companies, reflecting the characteristics of project-based sales. The average sales and management expense ratio of the company from 2008 to 2010 was about 10% and 11.6%, respectively, which is higher than the industry average. We believe that project-based companies have certain bottlenecks due to slow capital advances and turnover, so in the future, the company may gradually transition to a product type and increase the distribution ratio; the switchgear, electric energy meter, and highway guardrail business remains stable: the complete high and low voltage switch business is mainly used as the company discovers downstream customer needs, while at the same time enriching the product range. It is expected that there will be steady growth with the development of the permanent magnet switch business; electric energy meters and highway guardrails continue the company's history. There will be no additional investment. The sales scale is expected to remain stable, but the share of revenue will decrease; investment recommendations We expect the company to 2011 In 2012, we will achieve net profit of 0.95 and 120 million yuan respectively, with diluted EPS of 0.63 and 0.80 yuan respectively, and a compound net profit growth rate of 21%. Considering the uncertainty of the promotion of permanent magnet switch products and the company's project-oriented characteristics, combined with the valuation of the contract industry, we gave the company a PE target of 27 times in 2011, corresponding to a reasonable stock price of 17.1 yuan.