Instrumentation 2013 Mid-term Strategy Report

In recent years, the domestic instrumentation industry has developed rapidly. In 2004, the industry's total output value exceeded the threshold of 100 billion yuan for the first time. At the end of 2012, the industrial output value of the industry was close to 700 billion yuan. Especially in the five years between 2004 and 2008, the industry's compound annual growth rate exceeded 30%. With the declining macroeconomic situation in 12 years, the growth rate of the industry has entered a phased low, but since the fourth quarter of last year, the growth rate of the industry has started to recover. After entering 13 years, the warming trend has been further confirmed.

Compared with developed countries, the domestic instrumentation industry not only has a relatively small overall scale, but also accounts for a relatively low proportion of the total economic output. In 2004, the total output value of the domestic instrumentation industry accounted for less than 0.8% of GDP, and in 2012 it was only 1.33%. According to a report from the National Institute of Technology and Standards (NIST) of the US Department of Commerce, the United States had reached 4% in the 1990s. Therefore, we believe that there is still room for development in the domestic instrumentation industry, and the proportion of the industry's total output value to GDP will also gradually increase.

Grasp policies, pay attention to people's livelihood, and explore investment opportunities in the industry.

For the grasp of investment opportunities in the second half of the year, our logical lines are: following policies, looking at the macro, and selecting companies. The introduction and implementation of relevant policies can transform the market potential into market demand. For example, the introduction of policies on environmental monitoring, food safety, energy conservation and emission reduction, and production safety will promote the start of market demand in these areas and strengthen the enterprises. The willingness to invest so that companies comply with relevant regulations and standards.

For the overall situation of the industry in the second half of the year, we believe that in the process of macroeconomic stabilization and recovery, the instrumentation industry will also gradually egress the low point of the stage, but the process will be relatively long and the increase will be limited. The division of the subdivided areas within the industry will become more apparent. Specific to the investment strategy in the second half of the year, we believe that the main theme should be to grasp the investment opportunities, that is, to see the introduction of incentive policies and implementation, we are optimistic about smart metering, environmental monitoring equipment and other sub-fields of the development prospects. The growth of smart metering is relatively definite, there is room for future development, and the performance is guaranteed; while environmental monitoring instruments will benefit from environmental protection incentives and related products will usher in explosive growth. In addition, there may be some opportunities in food safety and heavy metal detection. In terms of individual stocks, we mainly recommend Gold Card, Snow Dixon and Xintian Technology, and we recommend Tianrui Instruments, Xianhe Environmental Protection and Concentration Technology.

Industry Catalyst (Front): Environmental Protection, Energy Measurement Reform, Internet of Things and New Urbanization.

Risk warnings (negative): The recovery of the valuation of the GEM, the intensified competition in the industry, the decline in corporate gross profit margin, and the risk of policy implementation less than expected.