Recent status of the company: Chengxing Co., Ltd. announced that the board of directors decided that the company plans to issue 30 million to 150 million shares privately, with no more than ten non-public offering targets. The additional price is 90% of the average price for the previous 20 days, which is about 7.0 yuan/share, and the planned amount of capital raised will not exceed 1 billion yuan. The capital raised was mainly used to (1) acquire 55% of the shares in the Leidatan Hydropower Station held by the controlling shareholder Chengxing Group; (2) 65,000 tons/year calcium phosphate technical improvement project; and (3) repay the company's bank loans and supplement working capital. Currently, the installed capacity of the Leidatan Hydropower Station is 3 x 3.6 MW, with an annual utilization time of 5,000 to 6000 hours. In 2008, sales were 104.8 million yuan, and net profit was 40.92 million yuan. Currently, net assets are 312 million yuan, and the assessed value is 455 million yuan, which is 1.46 times net assets. Due to high hydropower profit margins and stable profits, this assessment value is basically reasonable. Chengxing Group owns 55% of the shares, mainly supplying electricity to Miroku Phosphorus Power, which is controlled by a listed company. The related transaction in 2008 was 76.38 million yuan. The project will build 2 new production lines to produce two series of products, calcium hydrogen phosphate and tricalcium phosphate, respectively. After completion, the production capacity will reach 55,000 tons/year of calcium hydrogen phosphate and 10,000 tons/year of tricalcium phosphate. The company will make full use of the advantages of fine phosphorus chemicals and use the opportunity of international companies such as Rhodia to withdraw from the market to expand its market share. The company expects the project to achieve a net profit of 46 million yuan per year after delivery. The remaining funds raised are used to repay loans and supplement working capital, which is expected to reduce financial expenses by 15.9 million yuan per year. Comment: After the acquisition of the Leidatan Hydropower Station, it can reduce related transactions and enhance the profit stability of the enterprise. The company will increase net profit by 22.5 million yuan a year. After the construction of the phosphate project is completed, the annual profit will increase by 46 million yuan. Under our assumption that the new phosphate project in 2010 contributed half of production capacity, our sensitivity analysis shows that the number of additional shares issued exceeds 100 million, and the increase in earnings per share from acquisitions and new construction projects will not be obvious. Our earnings per share forecast did not take into account the 5% dilution of Chengxing Bonds after converting all of them into shares. Valuation and suggestions: We believe that Phosphorus Chemical will be at a low point in the industry this year and next two years, and it is relatively unlikely that there will be a sharp recovery. Considering that there is still uncertainty about the issuance plan, we are maintaining profit forecasts for the time being. The valuation level corresponding to the company's current stock price is still relatively high (37 x PE and 3.5 x PB in '09), maintaining a “neutral” rating.