Investment points recommend logic. The company is a typical “small leader in a big industry”. It is entering a period of rapid growth, and there is plenty of room for growth. 1) As the third-tier leader in the industry, the company directly targets overseas giants, positions products at the middle and high-end, avoids price competition, and benefits the most in the context of increasing industry concentration and continuous import substitution. 2) The company is deeply involved in channel expansion and brand building. Currently, it has more than 600 first-class distributors. It will continue to gain strength in the depth and breadth of regions covered in the next few years, and brand awareness will further increase. 3) The new production capacity was officially put into production in July this year, lifting capacity bottlenecks and helping the company to develop sustainably. The compound growth rate of net profit of the company over the past five years has exceeded 20%, and it has accelerated year by year, entering a virtuous cycle. Currently, the company's products still account for less than 1% of the market. There is no growth ceiling in the short term, so there is huge room for imagination in the future. Technological advantages guarantee middle and high-end positioning and differentiated product strategies. The company is positioned as a target market for the middle and high-end quality levels, and directly competes with overseas giants such as MegaShell, etc., and is the first in China to launch the highest-level products of various periods, such as SJ, SL, SM, and SN grade gasoline engine oil, and CI-4 and CJ-4 class diesel engines. The company's nanoceramics and nano-anti-wear agent series products have independent patented technology, which can effectively reduce engine cold start wear and low temperature wear. The company has carried out strategic cooperation with the Lanzhou Institute of Chemistry of the Chinese Academy of Sciences and Qingdao University of Science and Technology to continuously develop green, energy-saving, and environmentally friendly lubricants. Thanks to the dual drive of quality and brand, the company has successfully circumvented low levels of price competition and guaranteed the high gross profit of its products. The gross margin of lubricant products has risen in one fell swoop from 24.3% in 2011 to 38% at present. Continue to increase channel construction and optimize sales strategies. The company fully understands the attributes of lubricants as industrial FMCG products, and continuously strengthens and optimizes the construction of downstream sales channels. On the basis of maintaining the high cost performance ratio of products, the company has actively strengthened the construction of a dealer system and made full profit for dealers. The average gross profit of dealers is as high as 15%, which has mobilized the enthusiasm of dealers to the greatest extent possible. The sales force is expected to increase by more than 30% this year, the number of first-tier dealers is planned to expand to 700, and continue to make efforts in terms of both depth and breadth of coverage area. New production capacity is about to be released, breaking the bottleneck in production capacity. The company's Laoshan production base in Qingdao has a production capacity of 32,000 tons of automotive lubricants. Currently, the capacity utilization rate is as high as 147%, and the production capacity bottleneck is very obvious. The company's new production capacity in Huangdao Industrial Park was officially put into production in July of this year. The design has a production capacity of 80,000 tons/year for lubricants and 20,000 tons/year for antifreeze. It is an Industry 4.0 intelligent lubricant plant built according to world-class standards. After the installation is delivered, production capacity bottlenecks will be completely lifted, providing a guarantee for the company's high speed and sustainable development in the future. Profit forecasts and investment advice. We expect the company's net profit from 2017 to 2019 to be 157 million, 207 million, and 267 million, respectively. It will maintain a compound growth rate of 33% over the next three years. According to comparable companies, 35 times PE, corresponding target price of 36.28 yuan, and the corresponding target price will be raised to a “buy” rating.