The year-on-year growth rate in the third quarter was slightly lower than expected. The company today issued a forecast of results for the first three quarters of 2011: it is expected that the net profit attributed to the parent company during the reporting period is RMB0.80-90 million, an increase of 40%-60% over the same period last year, or RMB0.40-RMB0.45 per share, of which the net profit for the third quarter is expected to reach RMB0.20-30 million, an increase of 10%-30% over the same period last year, which is slightly lower than our previous expectations.

Quarter-on-quarter performance is basically flat, and investment in new product research and development is expected to continue to increase. From a quarterly point of view, the net profits of 2011Q1, Q2 and Q3 companies are 33 million yuan (including 14 million yuan in over-raised deposit interest), 28 million yuan and 0.2-30 million yuan respectively. However, considering the performance thickening effect of the newly merged graphite thermal field and quartz crucible business, it is expected that the company's technical R & D investment in LED sapphire growth furnace, MOCVD and other growth equipment will not be reduced. 1H2011's management expenses have increased significantly by 214% to 44 million yuan compared with the same period last year, and the management expense rate has also increased by 3 percentage points to 10.6%.

Photovoltaic terminal demand continues to be depressed, resulting in the company's photovoltaic equipment shipments difficult to accelerate. Since the beginning of the year, due to the reduction of subsidies in the two major photovoltaic installed markets in Germany and Italy, the global photovoltaic market demand has been in the doldrums, while the photovoltaic manufacturers are competing to expand production substantially. Under the pressure of high global photovoltaic module inventory (expected to be as high as 12GW and 22GW by the end of 2011 and 2012, respectively), the prices of products in each link of the photovoltaic industry chain continue to decline. As a result, downstream customers of the company have become increasingly cautious in expanding their silicon processing production lines and purchasing photovoltaic equipment, resulting in difficult to accelerate shipments of traditional single crystal furnaces and new product polycrystal furnaces during the reporting period. 1) We expect the company to deliver about 50 single crystal furnaces per month since the second half of the year, and about 350 in the first half of the year, and about 700 single crystal furnaces in 2011, basically the same as last year. 2) the company is expected to deliver about 20 polycrystal furnaces in the first three quarters. Another 30-40 units are expected in the second half of the year, and the cumulative delivery for the whole year is expected to reach about 60.

Integrate the crystal furnace industry chain to ensure profitability, sufficient reserves of emerging projects to lay a solid foundation for sustained growth. 1) through the investment of 1200 single crystal growth furnaces per year, and the acquisition of profitable silicon growth consumables business such as graphite thermal field and quartz crucible, with the integration of industrial chain and the improvement of internal supporting capacity, the company's gross profit margin of single crystal furnace will remain stable at a high level of about 40%. (2) higher value-added photovoltaic silicon growth and processing equipment, such as polysilicon ingot furnace, multi-wire cutting machine and graphite thermal field, will become the main driving force of performance growth in the past two years; 3) Sapphire growth furnace, LED substrate materials such as MOCVD, epitaxial materials and high-end processing equipment such as chips are expected to become the company's explosive growth engine in the medium and long term.

Maintain the investment rating of "highly recommended _ A". For the time being, we maintain our earnings forecasts of RMB 0.81,1.37,2.02 yuan per share for 2011-2013, with corresponding dynamic valuations of 22x, 13x and 9X respectively. The compound growth rate of the company's net profit in the next three years is nearly 60%. The valuation level has fallen back to a strong attractive range relative to growth expectations, and the investment rating of "highly recommended _ A" is maintained. It is recommended to focus on the recovery of photovoltaic demand and the investment opportunities brought by the company's new product technology and production and marketing breakthroughs, or the risk that the progress is lower than expected.