This report is read as follows:

The profit margin of the company's traditional business has improved significantly, and the layout of the third-generation semiconductor silicon carbide materials has benefited from the tide of semiconductor localization, giving an overweight rating for the first time, with a target price of 15.57 yuan.

Main points of investment:

Coverage for the first time to increase the rating, the target price of 15.57 yuan: the company's traditional business profit margin improved significantly, the layout of the third generation semiconductor silicon carbide materials benefited from the tide of semiconductor localization.

It is estimated that the EPS from 2016 to 2018 will be 0.41,0.35 and 0.39 yuan respectively, and the overweight rating will be given for the first time. With reference to the industry average PE valuation, the company will be valued at 38 times PE with a target price of 15.57 yuan.

Investment in silicon carbide materials benefits from the tide of localization of semiconductors: DeYun Venture, a wholly owned subsidiary of the company, set up Electronic Ore Co., Ltd. at the end of 2014 with Joule Research Institute of Japan Co., Ltd. And Juno Ruosong. Electronic Ore Co., Ltd. mainly studies and produces silicon carbide and other third-generation semiconductor ceramic materials. As the third generation semiconductor material, silicon carbide has excellent properties, such as wide band gap, high saturation drift velocity, high critical breakdown electric field and so on. Toshio Ruosong is the director of Joule Research Institute in Japan, with hundreds of technological inventions. He has invented silicon carbide semiconductor ceramic materials with high energy conversion between electricity, heat, light and electromagnetic waves, which have a wide range of applications.

The profit margin of traditional business has improved significantly: in terms of auxiliaries, benefit from downstream printing and dyeing capacity, increased industry concentration, the company's major customers order growth, ensuring the stable growth of auxiliaries business. At the same time, the company's layout of East China production capacity, can be effectively close to customers, to provide customers with timely response. In terms of isooctane, the company lost money in the first quarter due to low oil prices and basically stopped work in April due to technological renovation, but with the completion of technological upgrading and the moderate recovery of oil prices, the isooctane business is expected to turn a profit for the whole year. In terms of Yingnong model, we think that we will look at brand building in the long run, but benefit from rising pig prices in the short term, and profits have improved significantly.

Risk hint: the risk of a sharp correction in oil prices; low expected risk in the industrialization of silicon carbide materials.