Performance fell short of expectations, Shenyang Chemical announced its 2013 three-quarter report. During the reporting period, the company achieved sales revenue of 6.604 billion yuan, a year-on-year decrease of 12.2%; net profit attributable to shareholders of listed companies - 136 million yuan, a year-on-year decrease of 1.2%, and earnings per share - 0.207 yuan, lower than our expectations. Trends The company's refining and chlor-alkali business continues to be sluggish. Major refining products, as well as products including chlor-alkali products, propane oxide, and polyether polyols, operate at low prices. The profitability of acrylic acid and ester series products, which originally had good gross profit, also declined sharply due to the large-scale launch of new domestic production capacity and insufficient downstream demand momentum. The company's gross margin for the third quarter was only 5.85% in a single quarter, and the situation was grim. The company plans to issue no more than 158 million shares to Blue Star Group at a low price of 4.46 yuan/share to purchase 99.33% of its shares in Blue Star Dongda. It is currently awaiting approval from the State Assets Administration Commission. Blue Star Dongda's main product is polyether polyols, but currently affected by the international and domestic economic environment, excessive production capacity of polyether polyols is prominent, and profitability is not optimistic. Currently, the profitability of the company's refining and chlor-alkali business is sluggish. The gross margin of gasoline and diesel products is around 6%, and the gross margin of paste resin products has been drastically reduced to less than 10%. Due to oversupply in the industry, it is difficult for these two businesses to improve profits. The polyether polyols business to be acquired is also hard to say optimistic. Profit forecast adjustment We lowered the company's profit forecast to -0.29 yuan in 2013 and -0.13 yuan in 2014. The decreases were 193.5% and 119.6%, respectively. Valuation and recommendations We downgraded our rating to “neutral.” Risk: The profitability of the assets to be acquired falls short of expectations, and the refining and chlor-alkali industries will continue to decline in the future.