Key investment points Core view: Guanfu Co., Ltd. has overcome technical bottlenecks and entered the VE industry in a big way, and its performance is expected to explode next year. The company announced on August 1 that it will invest in the construction of a vitamin E project with an annual output of 20,000 tons. Based on judging the development trend of the vitamin E industry, we believe that the sharp reduction in industry supply & the addition of 20,000 tons of Guanfu will cause the price of vitamin E (powder) to rise first and then fall, and is expected to stabilize above 55 yuan/Kg after 2017; based on research on Guanfu's vitamin E technology route, we believe that vitamin E produced by Guanfu Co., Ltd. based on isophytol alcohol and hydroquinone's unique process has strong cost and quality advantages. After the Vitamin E project is put into production, every 10 yuan/Kg increase in price (oil) can increase the company's performance $141 million, greatly increasing the company's profitability. Furthermore, the company's acquisition of Plastic Rice City had obvious synergistic effects, creating a front-end vitamin trading platform. The company's vitamin E business was given 17 times PE in 2017 (technological breakthroughs enjoyed a valuation premium), 22 times PE for the pharmaceutical intermediates business, and 30 times PE for the plastics B2B business. The corresponding target price was 20-22 yuan, covering the first time, and given a “buy” rating. Why do you recommend Guanfu Shares? The future Vitamin E Little Giant's performance is expected to greatly exceed expectations after the project is officially put into production. From an industry perspective: On the supply side, the supply of vitamin E has been drastically reduced due to multiple factors such as the reduction of short-term raw material methyl acetoacetate, the discontinuation of G20 production, and a 30% reduction in medium- to long-term DSM production. On the demand side, increased commercialization of feed+rising demand for healthcare has led to a steady rise in demand for vitamin E. Once Guanfu Co., Ltd. has a production capacity of 20,000 tons, we believe that the price of vitamin E (powder) will rise and then fall under the changing supply and demand pattern. It is expected to stabilize above 55 yuan/kg after 2017. Looking at the production process: Nengte Technology, a subsidiary of Guanfu Co., Ltd., has completed the technical overcoming of the two main ingredients of vitamin E, completed the first domestic production process for isophytol, has a unique synthesis route and successfully established scale advantages for 2,3,5-trimethylhydroquinone, and has significant synergistic effects and cost advantages for entering the vitamin E production industry. However, large-scale upstream raw materials and large production capacity gave the company a strong voice in vitamin E prices. The competitive pattern evolved into Zhejiang Pharmaceutical (20,000 tons), Xinhecheng (18,000 tons), and their partners (20,000 tons+about 23,000 tons). The pressure on Guanfu Co., Ltd. to resume production after a short-term price increase was also relatively limited. Looking at performance expectations: simply considering the tax rate, starting with the lowest point of 74 yuan/kg since 2007, it is conservatively estimated that the vitamin E business (simply considering the tax rate) is expected to contribute about 734-1,016 million yuan to the company's net profit. Every 10 yuan/kg increase in the price of vitamin E (oil) can increase the company's profit by 141 million yuan and greatly improve the company's profit situation. The acquisition of Plastic Rice City had obvious synergy effects and created a front-end vitamin trading platform. Referring to our previously released “Zhongtai Securities Supply Chain Service Series Report 5: Capital Goes to Plastics B2B, the Industry is in the limelight”, the company's acquisition of Plasmicheng will help connect the company's mid- and back-end R&D results with front-end entrances, and have a strong synergy effect with the vitamins the company will be put into production. Later, real-time pricing of vitamins may be achieved through e-commerce platforms. Even without considering the synergy between the two, Plastic Rice City's “self-operation+supply chain service” model is superior and enjoys a trillion-dollar plastics market. The compound growth rate over the next 3 years will be over 35%. Profit forecast: The company's performance over the next three years is mainly driven by the rapid release of vitamin E products, the merger of plastic rice products, and the B2B plastic business. Without taking into account the additional sales of Plasmi City, we expect the company's revenue in 2016-2018 to be 7.90, 23.26, and 2,566 billion yuan, respectively, up -39.95%, 194.26%, and 10.34%. Net profit attributable to the parent company was 2.04, 7.01, and 875 million yuan respectively, up 5.53%, 243.64%, and 24.88% year-on-year, corresponding EPS of 0.28, 0.96, and 1.20 yuan respectively; considering the increase in sales in Sumi City, we expect the revenue of the operating company in 2016-2018 They were 7.90 billion yuan, 13.326 billion yuan, and 18.516 billion yuan respectively, up -39.95%, 1585.98%, and 38.95%. Net profit attributable to the parent company was 2.04, 9.02, and 1,081 billion yuan, respectively, up 5.52%, 342.09%, and 19.92% year-on-year, corresponding EPS was 0.28, 1.00, and 1.20 yuan, respectively. The company's current stock price corresponds to 16 x PE in 2017. Considering that the company has a lot of room for future development in the vitamin E sector, plastic rice city sector, and new materials sector, the vitamin E business and plastic B2B business are expected to contribute 750 million and 150 million profits respectively in 2017. The company's value is clearly undervalued, giving the company's vitamin E business 17 times PE in 2017 (technological breakthroughs enjoy valuation premiums), pharmaceutical intermediates business 22 times PE, and plastic B2B business 30 times PE. The corresponding target price is 20-22 yuan, for the first time coverage, giving a “buy” rating. Risk warning: the risk of vitamin E price fluctuations; the risk of increased competition; the risk of uncertainty over the Plumicine fixed increase plan; the risk that the company's vitamin E production and sales fall short of expectations.