The company's performance declined significantly in the first half of 2021 due to the sharp rise in raw material prices and the shutdown, expansion and renovation of core facilities. With the completion of the company's ethylene production capacity expansion and further enhancement of cost competitive advantage, superplasticizer monomer prices are expected to pick up in the peak demand season in the second half of the year, and superplasticizer monomer profits are expected to improve significantly in the second half of the year. In terms of electrolyte business, the 30,000-ton EO solvent equipment independently developed by the company has achieved batch supply of battery-grade products, and actively cooperated with Suzhou Huayi and Shenzhen Yanyi to promote the expansion of electrolyte and related materials. We believe that the company's electrolyte materials business is in line with the national carbon neutralization strategy and is expected to become the core growth point in the future, and the layout of pharmaceutical polyethylene glycol, surfactants and other new businesses are also expected to provide diversified growth space. To maintain the company's 2021-2023 homing net profit forecast of 426x5350.750 million yuan, corresponding to the EPS forecast of 0.63Universe 0.79Universe 1.10 yuan, the current stock price corresponding to 2021-2023 PE is respectively times that of 28-22-16, still optimistic about the company's business transformation and long-term growth, maintain the "buy" rating, continue to recommend.

The rise in raw material prices and the shutdown of the expansion of core units dragged down the performance in the first half of the year In the first half of 2021, the company realized operating income and net profit of 3.117 billion yuan and 83 million yuan, respectively, + 32.35% and-40.99% respectively over the same period last year, of which operating income and net profit of 1.735 billion yuan and 32 million yuan were realized in the second quarter, which were + 8.40% and-74.74% respectively over the same period last year, and + 25.52% and-36.73% respectively compared with the same period last year. The performance in the first half of the year was lower than expected, mainly because the high oil price pushed up the price of ethylene as raw material and suppressed the profitability of the company's superplasticizer monomer business, while the company's Yangzhou base 200000 tons of ethylene oxide (EO) core plant carried out capacity expansion from March 6 to the end of April, increasing renovation and expansion costs (including management expenses) without contributing revenue and profit. In the first half of the year, the company's comprehensive gross profit margin was 6.87%, down 7.38% from the same period last year, and the management fee was 80.96 million yuan, + 31.0% compared with the same

The self-owned solvent business has realized the batch supply of battery-grade products and continued to promote a number of 100, 000-ton production expansion. On October 27, 2020, the company announced that the "annual production of 20,000 tons of new energy lithium battery electrolyte solvent project" has reached the conditions of continuous and stable production. 2020Q4, 2021Q1 and 2021Q2 sell EC&DMC3500, 5600 and 4452 tons respectively, with a price of 7519, 6362 and 7440 yuan per ton per ton, with a gross profit margin of 38%, 32% and 32%. The company expanded the production of EC/DMC devices to 30,000 tons / year in March and April 2021, and has realized the batch supply of battery-grade products. The company announced that it plans to build 20,000,000 tons of EC/DMC in the next 3 years, and will gradually expand and EMC, DEC and other categories of solvents, and actively transform to new energy-related business.

Join hands with Suzhou Huayi and Shenzhen Yanyi to promote the collaborative layout of the electrolyte industry chain to enhance competitiveness. The company participated in 35% of Suzhou Huayi in April 2020. Huayi is one of the major additive suppliers. It currently has 2000 tons of VC and FEC production capacity, and plans to build 116500 tons of additives, hexafluorine and LiFSI capacity in Dalian in three phases. according to the market prices from the beginning of the year to the present, we estimate that Suzhou Huayi can contribute about 1.5 billion yuan in net profit in 2021, which is expected to significantly increase Oak's performance. On August 2, Oak and Shenzhen Yanyi New Materials signed the strategic cooperation framework agreement on the electrolyte industry chain. Shenzhen Yanyi currently has five business sectors: lithium battery binder, PI new materials, lithium battery electrolytes and additives, and solid-state battery-grade special polymer special materials. The two sides will cooperate to promote the landing of 100,000-ton electrolyte, solvent and related materials projects in southwest China.

Rising oil prices suppress the profit space of superplasticizer monomer, and Yangzhou production expansion is expected to provide some hedging. Since the beginning of the year, the rise in oil prices has pushed up the prices of raw materials related to superplasticizer monomers. We estimate that the average prices of 2021H1 ethylene, EO and superplasticizer monomers are 6503 yuan / ton, 7493 yuan and 9219 yuan / ton, respectively, compared with the same period last year. The price differences of ethylene oxide-ethylene, ethylene oxide-ethylene, superplasticizer monomer-ethylene were 2616, 1950 and 4172 yuan / ton, respectively. Year-on-year respectively-31.37%,-20.40%,-29.80%. The rise in the price of raw materials and the shutdown and expansion of the company's ethylene EO core plant in Yangzhou base in March-April are the main reasons why the company's gross profit margin in the first half of the year is lower than expected. However, after this expansion, the company's core ethylene EO plant has increased from 200000 tons to 300000 tons, and the cost advantage has been further enhanced.

Risk factors: the development of new business is not as expected, the prices of products and raw materials fluctuate, and infrastructure investment falls sharply.

Investment suggestion: the company's performance declined significantly in the first half of 2021 due to the sharp rise in the price of raw materials and the shutdown, expansion and renovation of core facilities. With the completion of the company's ethylene production capacity expansion and further enhancement of cost competitive advantage, superplasticizer monomer prices are expected to pick up in the peak demand season in the second half of the year, and superplasticizer monomer profits are expected to improve significantly in the second half of the year. In terms of electrolyte business, the 30,000-ton EO solvent equipment independently developed by the company has achieved batch supply of battery-grade products, and actively cooperated with Suzhou Huayi and Shenzhen Yanyi to promote the expansion of electrolyte and related materials. We believe that the company's electrolyte materials business is in line with the national "carbon neutralization".

The strategy is expected to become the core performance growth point in the future, and the layout of pharmaceutical polyethylene glycol, surfactants and other new businesses are also expected to provide diversified growth space. To maintain the company's 2021-2023 homing net profit forecast of 426x5350.750 million yuan, corresponding to the EPS forecast of 0.63Universe 0.79Universe 1.10 yuan, the current stock price corresponding to 2021-2023 PE is respectively times that of 28-22-16, still optimistic about the company's business transformation and long-term growth.

Due to the rising demand for new energy vehicles and the prosperity of the company's solvent and Huayi additive business, the performance and valuation of the relevant industry chain companies have increased significantly recently. at the same time, the company's production capacity has greater room for growth, with reference to the same industry valuation, according to the 2022 new energy business 230 million net profit forecast, 2022 55 times PE, superplasticizer monomer business 300 million net profit 10 times PE Give the company a target market capitalization of 15.6 billion yuan, corresponding to the target price of 23 yuan, maintain the "buy" rating, and continue to recommend.