Main points of investment:

The company's performance grew by 1.93% in January and September, which was lower than we expected. In the first three quarters of the announcement, the company achieved operating income of 692 million, an increase of 12.21% over the same period last year, and a net profit of 96.53 million, an increase of 1.93% over the same period last year, which was lower than we had expected. The decline in the growth rate of the company's performance is mainly affected by the performance of Q3. The company's 17Q3 realized operating income (YoY-7.47%,QoQ+1.01%) and parent net profit (YoY-41.12%,QoQ-25.07%) in a single quarter. We believe that the decline in performance in the third quarter is mainly due to the following three points: first, the company relocated a new factory, and some of the new increase in production at the initial stage of production was not immediately fully released, resulting in a decline in output, thus affecting sales revenue. Second, the company's gross profit margin has been affected by the decline in the price of Q3 products with the decline of raw materials and the high cost of inventory of raw materials; third, the company's income tax rate has increased year on year this year, deducting the impact of income rate, the company's operating profit has increased by 13.59% compared with the same period last year.

The decline in Q3 revenue is mainly affected by automotive lubricants. From a sub-sector point of view, automotive lubricants: a total of 37800 tons were sold in the first three quarters (46500 tons in 2016), with a total income of 583 million, of which 17Q3 sales revenue dropped 17.5% month-on-month, mainly from the relocation of the new plant, some of the new increase in the initial production of products was not immediately fully released, output fell to 10400 tons (QoQ-9.3%), dragging down sales by 13.4%. At the same time, the product price is adjusted to 15.10 million yuan / ton (QoQ-4.71%) Industrial lubricants: a total of 5118 tons were sold in the first three quarters (5536 tons in 2016), with a total revenue of 55.21 million, of which 17Q3 sold 15.452 million tons (QoQ+21.4%) at a unit price of 11000 / ton, which was the same as that in the second quarter. Antifreeze:

Seasonal reasons are mainly concentrated in sales in the third quarter, with a total sales of 7466 tons and a total income of 41.75 million.

The production plant of the company has been relocated and the new factory in Huangdao has been consolidated. 17Q3's production base was relocated from Laoshan District of Qingdao to Qingdao Huangdao Industrial Park. In the third quarter, the Huangdao factory was consolidated, and the company's fixed assets increased from 75.3 million to 316 million. The overall production of the company is carried out by the Huangdao factory, which has an annual design capacity of 100000 tons of lubricating oil (single shift), an annual production capacity of 20,000 tons of antifreeze and an annual production capacity of 1000 tons of brake fluid, which not only makes the company break the capacity bottleneck, but also brings the whole production cost reduction, quality and stability improvement, which is helpful to further open the market.

Downgrade earnings forecast and maintain "buy" rating: due to the company's poor operating performance in the peak sales season in the third quarter, affecting the full-year performance, taking into account the impact of new plant capacity and temporary uncertainty in sales expansion, we downgrade our 17-19 net profit forecasts to 131 million, 174 million and 238 million, respectively. The corresponding EPS before the adjustment is 0.66,0.87 and 1.19 yuan (the EPS before adjustment is 0.80,1.00 and 1.27 yuan respectively), and the corresponding PE for 17-19 years is 35X, 26x and 19x, respectively. Due to the company's positioning of the automotive aftermarket retail market, the upsurge in the heavy truck boom will gradually transmit to the automotive aftermarket consumer demand for lubricating oil, providing support for later performance, while breaking the capacity bottleneck after the new plant is put into production. the company's subsequent efforts in the marketing channel are expected to digest production capacity, be optimistic about the company's long-term growth, and maintain a "buy" rating.