On April 25, 2011, Demei Chemical announced its quarterly report. The company achieved operating income of 208 million yuan in the first quarter, a year-on-year decrease of 1.2%; realized net profit attributable to shareholders of listed companies of 16 million yuan, a year-on-year decrease of 42%; and EPS of 0.05 yuan. The main opinions are as follows: 1) The reason for the sharp decline in the company's profit is the rise in the cost of raw materials and the decline in investment returns. 60% of the company's main raw materials are downstream petroleum products. The rise in oil prices has increased the company's operating costs by 11.8 million yuan (9%) while its operating income is basically the same as last year. Furthermore, due to the listing of Oak Co., Ltd. and Tianyuan Group, the company's share of shares in the two companies fell from 10% and 15.7% to 6.94% and 11.77% respectively, and Tianyuan Group's first-quarter performance fell sharply by nearly one-third due to rising coal and calcium carbide prices, and the company's corresponding investment income decreased by 2 million yuan. 2) The company's products have high technical barriers and leading profitability in the industry. The company's printing and dyeing additives products are mainly post-treatment agents, and technical barriers are high. In the face of a sharp increase in costs in 2010, the gross margin is still over 35%, which is higher than that of other companies in the industry such as Transanhua Co., Ltd. (mainly pre-treatment agents, 32%) and Leap Tu Co., Ltd. (22%). In addition, downstream customers require constant guidance from the company's technical personnel during use and are highly dependent on the company's application services, so customer loyalty and stability are high. 3) Industry consolidation brings opportunities for expansion. There are nearly 3,000 printing and dyeing additives manufacturers in China, with a total production capacity of over 1.6 million tons, but most of them are private enterprises. Industry concentration is very low, and industry integration is an inevitable trend. The company is always looking for companies with differentiated products to acquire. Furthermore, out of China's 20 billion dollar printing and dyeing additives market, 2 billion is the high-end market, which is controlled by foreign joint ventures such as BASF. Although these companies have high-end products and high barriers to entry, they are likely to be bought by companies due to the high cost of their production and application services, making them difficult to operate. 4) Eliminate backward printing and dyeing production capacity to benefit leaders in the additive industry. In August last year, the Ministry of Industry and Information Technology requested that 3.8 billion meters of printing and dyeing production capacity be shut down, accounting for 7.6% of the country's total production capacity. Accordingly, the market share of large printing and dyeing enterprises that are company customers will be increased, thereby indirectly increasing the company's market share. 5) Equity investment will dominate, and there is a possibility that it will exceed expectations. The company holds 6.94% of Oak shares, 11.77% of Tianyuan Group, 30% of Hunan Utel, 60% of Dr. Lishui, and 70% of shares of Mingren Chemical. Among them, Oak shares and Tianyuan Group have already been listed. The company has now shifted its focus to equity investment. Investment income in the first quarter accounted for about 45% of operating profit, and is expected to exceed 50% in the future, making it the company's main business. Profit forecasts and investment advice. Maintain the company's 2011 and 2012 EPS of 0.65 yuan and 0.79 yuan, and maintain the recommended rating.