Key investment points: The explosion of PVC additive factories is expected to boost prices in the short term. On the morning of December 19, 2017, a fire accident occurred at a production plant in the Changle plant of Shandong Rike Chemical. The production capacity affected by the explosion included 70,000 tons of ACR, 30,000 tons of ACM, and 20,000 tons of AMB. Currently, the ACR price is around 24,250 yuan/ton. Affected by this incident, we determine that the supply of PVC additives may be tight in the short term, and the price will rise. Earnings increased 8.14% in the first three quarters. The company is mainly engaged in R&D, production and sales of PVC additives. Its main products are high-end ACR processing additives, ACR impact modifiers, MBS impact modifiers, etc., which are widely used in the fields of PVC pipes, profiles, sheets, wood plastic, foam products, etc., to improve the processability, impact resistance and weather resistance of these products. In the first three quarters of 2017, the company achieved revenue of 814 million yuan, an increase of 28.64% over the previous year; realized net profit of 22.827,800 yuan, an increase of 8.14% over the previous year. The comprehensive gross profit margin was 18.84%, down 9.37 percentage points, mainly due to insufficient construction in downstream pipe and profile industries, leading to overcapacity and increased competition in the additives industry. Accelerate the transformation of backward ACR production capacity and improve ACR production capacity. In 2017, the company upgraded the original 9,000 tons of ACR production capacity. At present, the renovation project has basically been completed. ACR is the impact modifier with the best comprehensive performance. In the North American and European markets, ACR impact modifiers account for more than 60% of consumption, while China still mainly uses low-end CPE, and ACR accounts for far below the level of the international market. As environmental pressure increases and demand for high-performance PVC additives increases, China's consumption ratio is gradually shifting to the trend of consumption ratio in developed countries. The company has an ACR production capacity of 55,000 tons and is the second largest ACR producer in China, with a market share of about 13.5%. Profitability is expected to increase with the introduction of new impact modifiers in production capacity. Linyi Ruifeng Polymer Materials Phase I, a wholly-owned subsidiary of the company, completed the 20,000 ton MC impact modifier project to co-produce 10,000 tons of epoxy chloropropane in July 2015. Affected by uncompleted inspection procedures before production and the initial design process did not meet normal production, the company implemented process modifications to the project in the first half of the year, and is expected to complete various inspection procedures and achieve production results in the fourth quarter. MC is a new impact modifier developed by the company. It has the same impact modification effect as ACR. The rigidity retention rate and overall mechanical strength are superior to CPE. The price is between ACR and CPE, and has a high cost performance ratio. It is widely used in plastic doors and windows, plastic pipes, new waterproof materials, architectural coatings, etc. However, due to stricter domestic environmental protection and safety inspections, the price of co-produced epoxychlorohydrin continues to rise, and the price continues to rise. We believe that production of this project is expected to raise the company's profit level. Profit forecasting and investment advice. We expect the company's EPS to be 0.15 yuan, 0.21 yuan, and 0.29 yuan respectively in 2017-2019. The company's performance is at the bottom due to asset impairment losses. Profitability is expected to improve in the future with the commissioning of devices and the introduction of new production capacity, so no rating is given. Risk warning. Raw material price fluctuation risk, product price fluctuation risk.