Key investment points: leading anthraquinone dyes, stable profitability. The company is the world's largest manufacturer of anthraquinone structured disperse dyes and reduced dyes. The market share of the main products in China is around 35%. At the end of 2016, the company had a production capacity of 22,000 tons and 15,000 tons of disperse dye products and filter cakes, 6,000 tons and 8000 tons of reduced dye products and filter cakes, 2,500 tons of solvent dyes, and 50,000 tons of dye intermediates. Since the company's products have reached a high market share and downstream demand growth is limited, the company's performance has been stable in recent years. Revenue has basically remained around 2.3 billion, and net profit has remained at around 650 million yuan. At the same time, the company's anthraquinone dyes are different from ordinary azo dyes. The level of competition is low, and they have pricing power within the industry. The price fluctuation is relatively small, and the gross margin is basically maintained above 50%, far higher than other dye companies. Downstream demand is picking up, and environmental pressure is driving up dye prices. The textile printing and dyeing industry accounts for about 90% of the total demand for dyes. In 2016, with the steady recovery of the domestic economy and the strong advancement of supply-side structural reforms, printing and dyeing cloth production began to correct from 5 consecutive years of negative growth, with a year-on-year increase of 4.74%. The textile business climate index also bottomed out and rebounded at the end of the first quarter of 2016, indicating a recovery in downstream demand. In recent years, as environmental requirements continue to rise, small enterprises that are unable to invest in environmental protection have successively stopped production and withdrawn, and the concentration of the dye industry has continued to increase. At the beginning of August, the environmental inspection team was stationed in Zhejiang, a major dye province, causing production restrictions for intermediates and dye companies. Product prices have risen rapidly. The average price of disperse dyes has risen 16% since August, and the price of No. 60 blue, the main product of the company's anthraquinone disperse dyes, has risen from 130,000/ton to 200,000 per ton, an increase of more than 50%. Overall, anthraquinone disperse dyes are expected to increase by more than 30%. In the future, as environmental pressure becomes the new normal, a high environmental protection threshold will remove backward enterprises and restrict the entry of new production capacity, and the concentration of the industry and the pricing power of leading enterprises are expected to increase further. The advantages of industrial chain integration are obvious, creating a circular economy for the park. Intermediates are a key part of dye production and usually account for more than 50% of the cost of dyes. The key intermediates required by the company in the production process are all self-produced and used. It has a complete self-supporting system for the product chain, and has significant cost advantages. At the same time, the company built its own sulfuric acid and cogeneration projects to create a circular economy system for the park. Profitability will rise to a higher level in the future. The expansion of external acquisitions continues, and the pigment market is expected to gain strength in the future. Since the company's main business has reached a bottleneck, it entered the field of anthraquinone solvent dyes through the acquisition of Daobo Chemical in 2015. With the development of pre-spinning coloring and inkjet printing and dyeing technology, the growth rate of the solvent dye industry is around 30%. Recently, the company announced that it plans to use its own capital to acquire 51% of the shares of Jiangsu Jiamai Chemical, a leading benzoyl chloride company, to further enrich its product line. At the same time, the company signed an “Investment Contract” with the Lianyungang Chemical Park Management Committee to carry out the construction of the fourth phase of the project on 1,000 acres of land. With the exception of the first phase of the project, the remaining three phases are all pigment projects, and considering cooperation with other enterprises, there are expectations of extended acquisitions in the pigment field. The pigment market is expected to open up new space for the company to develop. Profit forecast and rating: The company is a leading anthraquinone dye enterprise, with outstanding advantages in industrial chain integration. Under environmental pressure, short-term product price increases will benefit from rising product prices in the short term, which is beneficial to the further increase in industry concentration and pricing power in the long term, and the industry is expected to prosper in the long term. In the future, the company will focus on developing the pigment market and opening up new room for growth. It was covered for the first time, and a “increase in holdings” rating was given. The estimated net profit for 2017-2019 is 7.60, 10.54, 1,111 billion yuan, and EPS of 1.32, 1.83, and 1.93 yuan, corresponding to PE 15X, 11X, and 10X. Risk warning: Product prices are falling, and new projects are not progressing as expected