[event] the five national standards for gasoline and diesel will be implemented nationwide one year ahead of schedule. Recently, a reporter from China Business Daily learned that the national implementation date of the national five standards for motor gasoline and diesel oil will be advanced to the end of 2016, one year shorter than the original provisions of the national five standards. It is reported that the key to reducing the transition period is that the senior management attaches great importance to environmental issues, and the SAC is under a lot of pressure.

[opinion]

The five-year standard will be implemented ahead of schedule, and the demand for isooctane will be released ahead of time. In 2013, according to the requirements of the executive meeting of the State Council for the upgrading of oil quality, the relevant departments successively issued the national five standards for gasoline and diesel, indicating that the transition period of the national five standards to the end of 2017, and then rolled out nationwide. Now, the three-year transition period will be shortened to two years, and the key reason for reducing the transition period is that the senior management attaches great importance to environmental issues, and the SAC is under a lot of pressure. The early implementation of the five-year standard has led to the release of isooctane capacity ahead of schedule, and domestic gasoline production is expected to reach 100m tons in 2017. if the proportion of alkylated gasoline in the domestic gasoline blending components reaches 10 per cent by 2017 (the current world average is 8 per cent), the total demand for alkylated gasoline will reach 10 million tons. The implementation of the national five standards is conducive to environmental protection, but also will put forward higher requirements for the quality of gasoline and diesel. Isooctane as a high-quality gasoline additive in line with the national five standards will usher in a broad market prospect.

240000 tons of isooctane was officially put into production a few days ago, which will bring the company a new profit growth point. On March 26th, the company informed Zhongwei Chemical that the annual production of 240000 tons of industrial isooctane has been officially put into production a few days ago. The production capacity of domestic small and medium-sized isooctane units is relatively large, but the scale is generally small, and the operating rate due to working capital and raw material problems is only 40-50%. According to the current trend of alkylated gasoline, the average profit is estimated at 500 yuan per ton. 240000 tons of isooctane will bring a net profit of about 65 million (the company is entrusted to exercise 53.92% of the shareholders' rights of Zhongwei Chemical), while the net profit of Demi Chemical belonging to the parent company in 2013 is 115 million. With the implementation of the national five standards, there will be a great demand for isooctane in the market. This project will bring the company new profit growth and broad prospects.

The strictest food safety law may be introduced this year, the company's high-end agricultural and animal husbandry business ushered in rapid development. With the frequent occurrence of food safety problems, the food safety law, which is known as the strictest in history, may be introduced this year, and the production, processing and sale of various agricultural and animal husbandry products will be strictly regulated. In 2013, the company officially put into production and operation, taking "safe agricultural products" as the starting point, set up a complete "pig-marsh-grass" circular ecosystem breeding industry chain, and launched high-end pork products with "Yingnong Grass Xiang Pig" as the leading brand. Through the closed-loop control of "nursery-fattening-slaughtering-regional cold chain-store", quality control is carried out from each production and marketing link to ensure product safety. The company's main safe agricultural products and branded pork products will be welcomed by the market, and the company's agricultural and animal husbandry business will grow rapidly in the next few years.

The fall in oil prices is good for the textile auxiliaries business, and the purchasing cost advantage will improve profitability. Benefiting from the fall in the price of crude oil, the advantage of cost reduction will gradually emerge. The cost of raw materials for auxiliaries accounts for about 90% of the production cost, while more than 60% of the raw materials are petrochemical products, the price of crude oil has fallen, and the company's profits are expected to be improved. At the same time, the concentration of the auxiliary industry is low, and there are a large number of enterprises below the scale. Under the background of economic slowdown and national economic transformation, the probability of industry merger and reorganization is gradually increasing.

Maintain the company's "buy" investment rating. The commissioning of 240000 tons of isooctane project will bring greater profits for the company, the development of the company's agricultural and animal husbandry projects is improving, and the decline in oil prices will have a positive impact on the company. We estimate that the company's earnings per share from 2014 to 2016 will be 0.32 yuan, 0.41 yuan and 0.59 yuan respectively, giving the 2016 dynamic PE22 times the corresponding valuation of 13 yuan + 2 yuan to hold equity in other companies (the company holds 8.64% of Tianyuan Group and 6.94% of Oke shares for a long time. Based on the closing price on April 1, the total market capitalization is 852 million, accounting for 21.8% of the market capitalization of DMC, reflecting 2.64 yuan on the share price). The target price is 15 yuan to maintain the company's "buy" investment rating.

Risk hints: 1) there is great resistance to the promotion of the five standards. 2) the demand for isooctane industry remains sluggish.