1. Overview of the incident Tianlong Optoelectronics announced its 2011 semi-annual report: From January to June 2011, the company achieved operating income of 418 million yuan, an increase of 124.73%; total profit of 104 million yuan, an increase of 144.64%; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 61 million yuan, an increase of 85.84% year on year; EPS: 0.31 yuan. Meets our expectations. 2. Analysis and judgment. Sales of monocrystalline furnaces continued to be high. From January to June 2011, the company's revenue and net profit increased by 124.73% and 85.84%, respectively. Performance continued to increase dramatically. Among them, monocrystalline furnaces achieved revenue of 240 million yuan, an increase of 37.62% year on year. During the reporting period, the company's new acquisition of the holding subsidiary Shanghai James's main products attracted 92 million yuan, accounting for 23.08% of the main business revenue. The monocrystalline furnace business grew steadily, and the acquisition of James further increased gross margin. Monocrystalline furnace revenue increased 37.62% year-on-year during the reporting period. After acquiring James, thermal field design capabilities were further enhanced, and Tianlong Light Source Crucible was acquired, and the company basically completed the layout of the core components of the crystal growth furnace. The gross profit margin of monocrystalline furnaces in the first half of the year was 40.50%, an increase of 7.02% over the same period last year. In the future, monocrystalline furnace sales and thermal field services will steadily contribute to performance. Polysilicon ingot furnaces and multi-wire cutting machines are now being produced in small batches. During the expected volume reporting period, polysilicon ingot furnaces received small-batch orders, with revenue of more than 20 million in the first half of the year, and 6.75 million for cutting machines. The company raised 150 polycrystalline furnaces, and if all were produced, it could contribute 400-500 million dollars in performance. With the LED industry's Dongfeng, sapphire growth furnaces are poised to launch the 12th Five-Year Plan. The LED industry is entering the third period of rapid growth dominated by ordinary lighting. The compound growth rate of demand for sapphire substrates will reach 27% in the next three years, facing huge room for “import substitution.” During the reporting period, sapphire furnaces have begun to be produced in small batches. With the LED industry's strong momentum, sapphire growth furnaces are ready to go. Start the path of MOCVD localization and increase valuation space. During the reporting period, the company expects to complete MOCVD equipment prototype development in early 2012, which will open the path of domestic MOCVD equipment localization. Currently, MOCVD is monopolized by Aixtron in Germany, Emcore in the US, and Thomass in the UK. If the company succeeds in R&D in early 2012, it is expected to be produced in small quantities in 2013, which will contribute greatly to increasing the company's valuation. 3. Profit forecast and investment recommendations We expect the company's 2011-2013 EPS to be 1.11 yuan, 1.68 yuan, and 2.45 yuan, respectively. Based on the closing price of 27.58 yuan on August 9, 2011, the corresponding price-earnings ratios are 23 times, 15 times, and 10 times, respectively, giving the company a “prudently recommended” investment rating, with a target price of 35 yuan. 4. Risk warning: The market demand for monocrystalline furnaces is lower than expected, and MOCVD research and development progress is slow.