Matters: On August 1, the company announced that its wholly-owned subsidiary Nengte Technology plans to develop a production capacity of 20,000 tons of vitamin E per year, including a vitamin E synthesis and powder spraying workshop and a plant synthesizing plant with a supporting intermediate for vitamin E - isophytoalcohol synthesis. The total investment of the project is estimated at 576 million yuan. It is estimated that after delivery, the average annual revenue will increase by 1.39 million yuan, net profit by 30,000 yuan, and the payback period of investment after tax (including the construction period) will be 3 to 3.5 years. Currently, the world has a vitamin production capacity of more than 100,000 tons, including DSM (30,000 tons), BASF (20,000 tons,), Zhejiang Pharmaceutical (20,000 tons), Xinhecheng (20,000 tons), Beisha, Jilin (5,000 tons), and Southwest China Synthesis (7,500 tons). Demand is about 80,000 tons or more, CAGR is 2-5%, 80% is feed additives, and the competition pattern is relatively stable. Main opinion 1. Nente Technology's ability to innovate large-scale production processes is the core competitiveness of the “Thousand Talents Plan”. Dr. Cai Dongwei and Chairman Chen Liequan have developed and produced a variety of pharmaceutical intermediates with high technology content, and obtained a number of invention patents. Good at chemical reactions such as methylation of benzene rings, air oxidation of benzene rings, carbonization reactions, chiral splitting, and Grignard reactions. This pioneering process with low cost and low pollution has developed Ve key intermediate products including trimethylphenol and trimethylhydroquinone, which not only broke BASF's monopoly on trimethylhydroquinone, etc., but also has the ability to dominate trimethylhydroquinone. Next, it will be extended to large-scale production of Ve, and in the future it will continue to be extended to fields such as vitamin A, K3, and PPO (engineering plastics), forming a strong product hierarchy. Confidence in 22,000 tons of vitamin E comes from the advantages of process innovation, which drastically reduces production costs Vitamin E consists of trimethylhydroquinone (parent ring, accounting for 35% of the cost) and phytoalcohol (a side chain composed of 20 carbons, C20 for short, accounting for 65% of the cost). For the synthesis of the mother ring, the company used cheap parabylene as the starting raw material, and the oxidizer used air to replace potassium permanganate, reducing the overall cost by about 50%; for the synthesis of isophytol, the traditional process used C5 as raw material, obtained C20 through three major cycles, one C5 at a time, while the company used fanylene (C15, which comes through a biological fermentation method, external procurement, and reached a sole use agreement with the target company in the field of vitamin E) to C5 through a major cycle to obtain the C20 side chain. The company has broken through the core technical bottleneck of the process. According to the company announcement, the comprehensive cost of producing vitamin E, including tax, is below 40 yuan/kg, and the average production cost is about 30% lower than that of other vitamin E manufacturers. If the price of Ve is 60-120 yuan/Kg in the next two years, the profit will increase by about 32-1.68 billion yuan. 3. Investment advice: The company has drastically reduced the production cost of Ve through process innovation. Demand for feed additives in the aquaculture industry is strong, and the medium to long-term price of vitamin E is bullish. According to plastic rice information, based on test preparation performance (without considering supporting financing), the company's net profit for 2016-2018 is estimated to be 4.04/7.63/1,253 billion yuan, EPS is 0.48/0.91/1.48 yuan, and corresponding PE is 33/18/11 times, respectively. Give the investment a “Highly Recommended” rating. 4. Risk warning: risk that large-scale production of vitamin E will not meet expectations; risk that C15 farniene exclusive cooperation will not fulfill the agreement; risk of vitamin E price fluctuations.