Investment Overview Xiangyu Dredging is a private dredging company in China. Based on the dredging volume in 2010, the Group is the largest private dredging company in China. Its share in the private market has reached 15.5%, and it also has a 2.4% market share in the overall Chinese dredging market. The group provides a range of dredging services, including infrastructure, reclamation, maintenance and environmental protection through three methods, including owning its own dredgers, hiring third party dredgers, and hiring third party dredging companies. Considering factors such as 1) the Group's signed contract balance of over 1.1 billion yuan as of the end of 2010; 2) the potential revenue contribution of the Yancheng City and Dongying Port projects, and 3) the Group's past net interest rate has remained above 25%, we believe that the Group should be able to realize a profit of RMB 300 million, which is equivalent to a profit of RMB 0.375 per share. We compare the valuation of three infrastructure enterprises and groups, including China Communications Construction (01800), China Railway (00390), and China Railway Construction (01186). The business performance of these three infrastructure enterprises, like the Group, is largely influenced by China's investment in infrastructure construction; among them, China Communications Construction is the largest dredging enterprise in the country, so we agree that it is reasonable to compare the valuation of these three infrastructure enterprises with Xiangyu Dredging. The average value of the expected price-earnings ratio of the three infrastructure companies in 2011 is only 7.7 times. Although the profit margin of Xiangyu dredging is high, this part is because dredging work requires a large initial capital investment, so using the perspective of net current value, dredging work may not be more profitable than other infrastructure work; furthermore, if the dredging business has better prospects than other infrastructure work, other infrastructure enterprises (especially China Communications Construction, which is the leader in the dredging industry) will allocate more resources to develop this business and increase competition in the Chinese dredging market. Therefore, we used the anticipated price-earnings ratio of 7.7 times in 2011 as a reasonable valuation of Xiangyu Dredging, that is, the reasonable stock price is HK$3.4, which is below its maximum prospecting price, giving it a neutral rating.