Rongxin shares: High-voltage frequency converters and wind power converters become growth engines

The company has sufficient orders and the main product maintains stable growth. In the first half of 2010 , the company and its holding subsidiary Beijing Xinli Zhengzhengxin entered into a single signing of 607 million yuan, including a new signing order of the company's headquarters of 514 million yuan, an increase of 90.91% year-on-year; Xinli Zhengzheng new signing of 93.12 million yuan, a year-on-year decrease of 61.22 % . The reason for the decline in Xinxinzhengzheng's new orders is that the company's residual heat and pressure energy-saving power generation business has the characteristics of large advance payments and long payback periods. At present, there are still unimplemented contracts of 469 million yuan, which is limited by insufficient working capital. In order to undertake the order size, the company will determine the order size in the second half of the year based on the completion status of the unexecuted contract.

High-voltage frequency conversion device HVC will continue to grow exponentially, and its gross profit margin will decrease slightly: The Company's high-voltage frequency conversion products are based on the high-end market, and the localization project for 10kV ultra -high-power frequency conversion devices will soon be completed, and it is expected to begin to contribute profits next year. In 2010 , the sales revenue of the company's high-voltage inverter products is expected to maintain exponential growth. However, due to the increasingly fierce competition in the high-end product segment this year, the gross profit margin may decline slightly.

The development of wind power converters is progressing smoothly and is expected to begin on the market during the year: The wind power converters developed by the company are currently being tested by Goldwind's 1.5MW wind power converter test platform, and it is expected that the first batch of products will be sold during the year. The price of this product is expected to be around 800,000 yuan, which is one of the important components of wind turbines. The annual market demand will be about RMB 3-4 billion, which will become the company's next profit growth point.

Completing the capital increase for subsidiaries and strengthening the competitiveness of the company's business: First, the company invested 33.75 million yuan to invest in its subsidiary, Qingdao Hengshun Electric Co., Ltd. (shareholding ratio 14.71% ), to strengthen the production capacity of the company's reactors and other products; Invested 4 million yuan to transfer 22.6% of the shares of Shanghai Dio Co., Ltd. At the same time, it added 12.9998 million yuan to the company, and thus held 55.4% of the shares of Shanghai Diao Company. Shanghai Diao specializes in R&D and manufacturing of mine large-scale transmission and automation control equipment and system application software. It is a further extension of Rongxin's products, technology and market in the field of coal underground frequency conversion.

Investment rating: We maintain our previous earnings forecast and expect the company's earnings per share from 2010 to 2012 to be 0.78 , 1.05, and 1.35 yuan. Based on the 45- fold price-earnings ratio in 2010 , the valuation range is 35.1-38.6 yuan, giving an investment rating of “ prudent recommendation- A” .