Incident: The company released its annual report on the evening of April 2, stating that revenue for 2012 was 1,247 billion yuan, up 1.2% year on year; net profit attributable to owners of the parent company was 567.942 million yuan, up 2.88% year on year; and earnings per share after full dilution were 0.23,695 yuan, up 2.88% year on year. Slightly below expectations. The main business revenue and gross margin remained stable, and the chemical equipment and pump systems business contributed significantly to revenue growth. The company's main business revenue during the reporting period was 1,231 million yuan, up 1.64% year on year; main business cost was 993 million yuan, up 1.58% year on year; comprehensive gross margin for the period was 19.285%, up 0.04% year on year. The biggest contributor to performance was pump and pump system products and chemical equipment. The year-on-year increase in revenue was 15.26% and 8.52%, respectively. The weak cyclical nature of these two businesses helped maintain the long-term stability of the company's performance. “Market growth+business upgrade” helps the pump and pump series business grow further. In 2012, the company's pumps and pump system products have become the main source of revenue, contributing a total revenue of 406 million yuan, accounting for 33% of total revenue in 2012, an increase of 8.52% over the previous year. The main products include fire pumps, fuel pumps, industrial pumps and system integration. Among them, fire pump products are mainly used in civil fire protection and forestry fire protection; with the development of the economy, demand for industrial fire protection such as petrochemicals and storage of dangerous goods is increasing, bringing new impetus to the fire fighting equipment market; furthermore, with the further increase in the degree of urbanization and the increase in environmental protection pressure in China, the country's attention to urban, forestry, etc. fire safety is expected to further increase, so we are optimistic about the future development prospects of the fire protection industry. The company's special pump products have become standard equipment for the main fire engines currently in service in China, and have a broad market base. It also helps fire companies to undertake various types of fire protection projects after successfully upgrading to the first-level qualification for fire protection facility engineering, and use the company's collaborative advantages in product technology and engineering design to complete the transformation from product-oriented to service-oriented, thereby increasing the profitability level of such businesses and making greater contributions to the company's performance. The leading equipment for oxidation reaction and crystallization technology opens the door to the import substitution market. The company is the largest comprehensive engineering contractor in China whose main business is oxidation reaction and crystallization technology. It has rich technical reserves and design and construction experience in the design and manufacture of phthalic anhydride, acrylic acid, and crystallization equipment, and already has the strength to compete with international industry giants such as BASF, Mitsubishi Chemical, and DSSE in the domestic market. In 2012, the company increased its market development efforts, highlighted its advantages, adjusted its product structure according to market conditions, and achieved a 15.6% year-on-year increase in chemical equipment revenue, while technological upgrades also brought a slight increase in gross margin. With China's economic development, the domestic biochemical and petrochemical products market has maintained rapid growth, and market demand is strong. In particular, in the fields of alternative energy, biomedicine, deep processing of petrochemical products, deep processing of grain, etc., key technologies and key equipment still need to be imported. Currently, the company has complete system engineering design capabilities and manufacturing capabilities, and it is expected that the import substitution market for high-end chemical biological equipment will be further expanded with higher cost performance and better after-sales service. Cash flow from operating activities has improved significantly. The net cash flow from operating activities in 2012 was 45.954 million yuan, an increase of 70.144 million yuan compared with 24.186 million yuan for the same period in '11, an increase of 290% over the previous year. Mainly due to the increase in cash received from the sale of goods and services in the current period, the increase in payment capacity shows that the company's efforts to improve its operating capacity are effective, and also indicates that the company's profit level will increase further in 13 years. The targeted increase was completed, and the capital raised was mainly invested in the passenger car hydraulic torque converter project. On March 21, 2013, the company issued a targeted additional 79.42 million shares to the majority shareholders and three institutions at a price of 12.59 yuan (95.74% of the closing price on the issuance and subscription date), raising a net capital of 967 million yuan. Of these, the majority shareholders limited the sales period for 36 months, and the other three institutional investors limited the sales period for 12 months. The capital raised this time is mainly invested in the automotive liquid torque converter project to further increase the production capacity of passenger car hydraulic torque converters on the basis of the company's existing technical advantages, and to increase the localization support rate for this key component through cooperation with mainstream domestic independent brand car companies. As a result, it entered the passenger car parts market with a high gross margin and further improved the company's product layout. Highlights from 13 years: Production capacity expansion of the hydraulic torque converter product project. The company's liquid torque converter products include hydraulic torque converters for off-road vehicles and hydraulic torque converters for road vehicles. It is the only domestic manufacturer with independent intellectual property rights that can develop and produce various types of hydraulic torque converters on its own. Currently, it mainly focuses on military and mining markets, and is actively exploring the passenger car market. It has signed strategic cooperation agreements and technical cooperation agreements with mainstream domestic passenger car manufacturers such as Geely, Chery, Great Wall, and BAIC. The company's revenue for hydraulic transmission products in 2012 was 152 million yuan, lower than expected. The main reason for this was that the downstream construction machinery and automobile market was sluggish in 2012 and demand was weak. 13-year outlook: On the demand side, with macroeconomic recovery and increased investment in infrastructure and real estate, the construction machinery and automobile industry is expected to recover moderately in 13 years, and production and sales data for automobiles and construction machinery for the first quarter of this year also confirm this trend; on the supply side, the company completed the construction of a passenger car hydraulic torque converter production line with a total production capacity of 600,000 units in 2013, and completed the construction of a commercial vehicle torque converter production line with an annual output of 80,000 units. It has also begun construction of a production line for passenger car hydraulic torque converters with a total production capacity of 900,000 units, and construction of production capacity for core components of hydraulic torque converters. Once the construction project is completed, it is expected to further increase the market share of the company's hydraulic torque converters. It is initially estimated that hydraulic torque converters will contribute about 600 million yuan in revenue in 13 years. Asset injections are possible in the future. Investment in aerospace and military equipment research and development is huge. Currently, China is in a new phase of aerospace and military equipment replacement. In the past, the model of relying only on national financial investment has become unsustainable. As the degree of transparency in China's military construction increases further, using the capital market to raise relevant R&D and construction funds will be the only option. The company is currently the only listed company under the Sixth Aerospace Academy, and the development of the military industry after the system reform will bring new opportunities to the company. After the restructuring is completed, there is a possibility that a large amount of high-quality assets from the Sixth House will be injected, which will greatly enhance the company's technical strength and profitability. We have long been optimistic about the company's market potential in the commercialization of aerospace, military technology, and technology. Maintain a discreet recommendation rating. After full dilution, earnings per share for 2013-2014 are expected to be 0.19 yuan and 0.22 yuan, respectively, and the corresponding PE is 67 times and 58 times, respectively. Taking into account the company's position in the industry and the growing trend of future market demand, it was given a “careful recommendation” rating for the first time. Risk warning. Macroeconomic recovery has been repeated, and demand side growth has fallen short of expectations.