The graphene industry was transformed earlier and developed rapidly. The company has carried out a series of transformation arrangements in 15 years: 1) In May, it purchased patented technology. Signed the “100 tons/year graphene industrial production project technology transfer and patent implementation license and technical service contract”; 2) Tsinghua University cooperation was introduced in July. A framework agreement on graphene application technology research and development was signed with Tsinghua University to jointly develop graphene batteries and enter downstream applications. In the same month, the company acquired 43% of Dongrun Mining's shares to get involved in graphite concentrate production; 3) In August, it invested 500 million yuan to build a graphene project with an annual output of 100 tons. The group invested a total of 500 million yuan, of which listed companies invested 200 million yuan for 100 tons of graphene, and the group invested 300 million yuan to build a lithium iron phosphate project (2,000 tons/year). 4) Advanced technology. At present, the company has made technological breakthroughs from laboratories to mass production, and domestic graphene is in the breakthrough stage of technological research and development to industrial mass production. Graphene technology is mature, and downstream demand has yet to be developed. 1. Leading technology. Domestic graphene research and development is rapid, and various production technologies have emerged. The quality and price of products vary. Single-layer graphene has the highest quality and is also the most expensive; the more layers, the lower the quality and the lower the price. The company obtained the exclusive right of the graphene preparation technology patent from Qingdao Jinmo Automation Technology Co., Ltd. in Northeast China. The technology is relatively mature and can produce 1-3 layers of graphene. The indicators are in line with the graphene indicators announced by Professor André Heim, the inventor of graphene, and the product has an advantage in technology and price. 2. Resource advantages. Heilongjiang, where the company is located, has 64% of the country's graphite resource reserves, and most of them are high-grade large scale graphite mines. Major domestic graphene production companies have deployed graphite mines in Heilongjiang, so the company has a strong resource advantage. 3. Advantages of early mass production. The graphene project is expected to be put into trial production in October 2016. Considering that most of the current production processes have not reached the level of 100 tons, we believe that in the future, after mass production, the company will become the largest graphene supplier. Currently, domestic graphene is in the breakthrough stage of technology research and development to industrial mass production. For downstream industrial applications, with the exception of stable demand for ternary lithium batteries, the rest of the demand has yet to be developed. The company takes the initiative to cooperate with universities to develop downstream applications of graphene, and is paying close attention to the development and application of downstream green environmental protection projects, such as supercapacitors and seawater desalination. Profitability and valuation. Affected by the economic downturn, the price of coke continues to fall, and the profit pressure on the company's main business is high. It is expected that there will be no fundamental improvement in 16-18; it will only be possible to achieve a basic balance of profit and loss. Meanwhile, demand for graphene in 16-17 is expected to contribute 0.08 yuan and 0.10 yuan to EPS. We forecast that the company's EPS for 15, 16, and 17 will be 0.07 yuan, 0.10 yuan, and 0.14 yuan, respectively. Referring to the graphene industry, the average PE valuation of comparable companies in 2016 was 71 times. Considering the company's comprehensive competitive advantage, the company was given a valuation of 75 times in '16, with a target price of 7.5 yuan and a “increase in holdings” rating. Risk warning: There is great uncertainty about the development of downstream demand; the commissioning of the project does not meet expectations; graphene production capacity may be excessive; coal chemical projects are still being invested in construction, so the risks are high.