Hengding Industrial Co., Ltd. made a success in 2012. For the whole of 2012, the company realized 19.236 million yuan in income, 32.8% less than the same period last year, and 1.474 million yuan in core income, or 0.07 yuan per share. The annual results of the company in 2012 are even worse than our predictions. Previously, we expected the 2012EPS to be 0.01yuan for the people, while the market consensus forecast 2012EPS for the people to be 0.07yuan.

The company suffered a shutdown crisis in the second half of 12 years. A mine was found in Panzhihua City, Sichuan Province on August 29, 2012. The city-wide production shutdown affected five mining areas of Hengding and affiliated companies, and the house leakage occurred overnight. On December 5 of the same year, nine coal mines in Qujing City, southern China, were unable to carry out production due to the suspension of production in the whole mining area. The company was hit by accidents in the area where the coal mine is located. In 2012, the output of raw coal was reduced by 142% to 352.2 tons, and the output of refined coking coal was reduced by 14.5% to 157.8 tons.

Affected by the depressed market demand, the average sales of main products declined. The macro economic growth rate has slowed, and the economic growth of the Bank of China has been in the doldrums, affecting the decline in the demand for coking coal, which plummeted from August to September in the past 12 years. In 2012, the company's average sales of refined coking coal were 1132.5 yuan, down 13.0% from the same period last year, and coke sales were 1469.4 yuan, down 9.4% from the same period last year. The output and sales of the main products have declined, and the company has been in an economic dilemma for 12 years.

2013 will still be a difficult year. According to the recent announcement issued by the company, due to the coal mine accident in Liuxishui City, Guizhou Province on March 12 this year, the company has stopped production and overhauled some of the coal mines in Guizhou Province, and is currently in the process of duplicating production one by one. In addition, nine coal mines in Qujing City, Guizhou Province are expected to resume production by the end of March this year, while only one of the five coal mines suspended in Panzhihua City in Sichuan Province has received a notice, and the other four will have to wait. Therefore, the company's coal production will be affected by the suspension of production in the first-second quarter of 2013. The company's raw coal output in 2013 is expected to reach 330-350 kW.Therefore, I further step down its profit forecast for 2013, from 0.10 yuan per share to 0.06 yuan per share. Maintain the company's "neutral" investment level. The poor safety profile of small and medium-sized coal companies in southwest China has created a very large and irresistible impact on the continued stability of the company. We believe that the company's 2013 operating conditions are unbearable, so we change the company's investment level from "neutral" to "sell" and maintain the target of HK$1.48, which is 0.34 times 2013 PB, with an increase of-28.3%.