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　　 Changjiang Securities Chen Zhijian

Event description:

　　 Zhongtian Technology Released its 2012 semi annual report, and achieved an operating revenue of 4.18 billion yuan, up 24.22% year on year; The net profit attributable to shareholders of the listed company was 291 million yuan, down 1.51% year on year. In the first half of 2012, the fully diluted EPS was 0.41 yuan.

Event comment:

The revenue grew rapidly, and the profit basically met the expectation: driven by the strong demand for optical fiber cables and special wires, the company's revenue kept growing rapidly; In terms of net profit, the growth rate of net profit is significantly lower than that of revenue due to the sharp increase of administrative expenses and the decrease of non operating revenue; In terms of gross profit rate, the gross profit rate of the company in the first three quarters reached 21.27%, and the situation continued to improve. We believe that the main reason for the improvement of gross margin is the expansion of the sales scale of the company's special cable products and the stabilization of the executive price of optical fiber. The improvement trend of gross margin will continue throughout the year.

Continuous R&D investment, the pressure on the expenses during the period remains: the expense rate in the first three quarters of the company reached 11.80%, up 1.61 percentage points year on year, of which the administrative expenses increased significantly by 88.97%.

We believe that this is mainly due to: 1. The salary of the company's employees has increased; 2. The company has invested heavily in R&D projects of preforms. In the long run, the company's investment in research and development will inevitably bring rich returns on income and profits. We remain optimistic about the company's long-term performance in the future.

The price of optical fiber is stabilizing, and mass production of preforms enhances profitability: we believe that the demand for optical fiber will remain high, mainly because: 1. In the context of the upcoming "broadband China" strategy and the demand for user bandwidth expansion, the construction of fiber to the home on the access side will bring a lot of demand for optical fiber; 2. The establishment of China Radio and Television Network Corporation will unify the national business entity of the Department of Radio and Television, and the intensification of competition among operators will benefit the development of broadband industry in the long run and drive the demand for optical fiber; 3. In the wireless field, the acceleration of TD-LTE license issuance by the Ministry of Industry and Information Technology will drive the demand for mobile base station construction, thus releasing the demand for base station return fiber. On the other hand, the company's production capacity of preforms has been increased to 200 tons. With the continuous expansion of the production capacity of preforms, the advantages of the company's layout of optical fiber industry chain integration will be revealed, thus greatly improving the company's profitability.

The variety of wire products is complete, and the market share is steadily increasing: the company's special wire can well meet various demands of the power grid with its high conductivity and low energy consumption, and the market share is steadily increasing. At the same time, the gross profit rate of special wires is significantly higher than that of traditional power cables. With the acceleration of the national construction progress in smart grid, the sales of special cables will continue to grow rapidly, raising the overall gross profit rate of the company.

Profit forecast: we expect the company's fully diluted EPS in 2012, 2013 and 2014 to be 0.60 yuan, 0.65 yuan and 0.71 yuan respectively, and give the company a rating of "prudent recommendation".

[Zhongtian Technology Bar]