Operating conditions in 2011: Shenyang Chemical announced its 2011 results, achieving operating income of 10.09 billion yuan, up 34.9% year on year; operating profit of 141 million yuan, net profit attributable to shareholders of listed companies of 210 million yuan, a slight decrease of 2.4% year on year, or 0.32 yuan per share. No distribution, no increase. Positive: Cost advantages of raw materials for CPP and DCC devices: The company currently has 500,000 tons of CPP and 500,000 tons of DCC cracking plants. It uses paraffin-based heavy oil to replace naphtha (light oil) for production, which has a certain cost advantage and is in line with the national energy strategy. Crude oil import target guarantee device operating load: The company received a new import quota of 720,000 tons from the Ministry of Commerce this year to supply raw materials for 500,000 tons of CPP devices. The increase in import quotas will help the company increase the load rate of devices and reduce costs. The profitability of acrylic acid and esters is stable: The company's gross margin of acrylic acid reached 28.2% in 11 years, which is basically the same as the same period last year, but it mainly benefited from the high price of products in the first half of the year. The profit contribution of chlor-alkali products increased significantly: the company's gross profit of chlor-alkali products contributed 370 million yuan in 11 years, an increase of 150 million yuan over the same period last year, providing 36% of the company's gross profit with less than 20% of sales. The company's chlorine-terminal product is PVC paste resin, which is mainly used for medical gloves, etc. Compared with ordinary PVC resin, its periodicity is not obvious, and the gross margin is 3% higher than 10 years; caustic soda, on the other hand, benefited from the industry's low operating rate last year, and the gross margin increased significantly by 30.7%. Negative: Profit declined markedly in the second half of the year: the company's sales revenue in the second half of the year fell 15% compared to the first half of the year, and net profit fell by as much as 57%; if non-recurring profit and loss were deducted, the actual loss in the second half of the year was 14 million yuan, of which nearly 30 million yuan was lost in the fourth quarter. Mainly due to the drop in product prices (the average price of acrylic acid fell 19% in the second half of the year, the average price of paste resin fell 10%), while the price of raw materials was high, reducing profit margins. New production capacity will increase competition: the paste resin industry will add 290,000 tons of production capacity this year, with a total production capacity of nearly 1 million tons; while butyl acrylate will increase production capacity by 260,000 tons, with a total production capacity of 1.21 million tons. The investment of additional production capacity will worsen the profitability of the company's main products. Valuation and suggestions: The company's future profits are still not optimistic due to low demand and high oil prices. We expect the company's 2012-2013 EPS forecast to be 0.4 and 0.46 yuan, respectively. The current stock price corresponding to 2012-2013 PE is 15x and 13x, respectively. There is little valuation pressure, and it maintains a “prudent recommendation” rating. Risks: 1. Continued downturn in downstream demand puts pressure on product prices; 2. New production capacity intensifies competition and reduces product gross profit margin; 3. High oil prices reduce company profit margins; 4. Downward risk in market valuation center.