Key events described in the report Baoding Heavy Industries released its 2014 quarterly report, which achieved operating income of 605 million yuan, up 31.78% year on year; net profit attributable to shareholders of listed companies was 29 million yuan, down 42.82% year on year; net profit attributable to shareholders of listed companies after deduction was 014 million yuan, down 70.05% year on year. Basic earnings per share are $0.09. The incident commented that orders and sales improved in the first quarter, but net profit still declined sharply due to low gross margin. Benefiting from a recovery in shipbuilding orders in the second half of last year, the main business sales during the reporting period were about 600 million yuan, an increase of nearly 32% over the previous year. This is the first positive increase in revenue in a single quarter since the second quarter of 2012. However, on the other hand, the current capacity utilization rate has not reached a reasonable level, and the company has many new products, causing gross margin to fall below normal levels, dragging down the growth rate of net profit. The inflection point in performance is approaching, and the company expects net profit to increase by -25%-15% in January-June. The core driving force behind the improvement in performance is: a) the rebound in orders for ship casting and forging parts; b) the expansion of new products and fields of finishing. As previously announced, semicircular board products have been approved by the China Classification Society factory, and new products in the offshore industry are one of the important aspects of this year's performance growth. However, the investment project “20,000-ton/year large-scale casting and forging construction project” to raise capital from the company's IPO was officially completed in March of this year, leading to a sharp increase in depreciation of fixed assets, and the initial completion of the new project did not fully reflect economic benefits or limit the recovery in net profit. Performance forecasts and investment recommendations: The estimated sales revenue for 2014-15 is about 450 million yuan and 750 million yuan respectively, net profit attributable to the parent company is about 0.24 million yuan and 90 million yuan respectively, EPS is about 0.16 and 0.60 yuan/share, respectively, and corresponding PE is about 88 and 23 times, respectively. The company's performance recovery in the next two years is quite flexible and remains “recommended.” The risk suggests that the progress in generating profits from fund-raising projects is falling short of expectations. The expansion of epitaxial expansion is progressing less than expected.