Events:

The company issued a revised announcement on its 2017 performance forecast: it is estimated that the net profit belonging to shareholders of listed companies in 2017 will be 280-340 million yuan, an increase of 14.1%, 38.5% over the same period last year, and a net profit of 245 million yuan in the same period last year.

Comments:

1. The company's performance increased significantly in the fourth quarter, mainly due to the simultaneous increase in the quantity and price of vitamin E.

The company achieved a net profit of 142 million yuan in the first three quarters of 2017 and will achieve a net profit of 1.38-198 million yuan in the fourth quarter according to this announcement. The sharp increase in fourth-quarter results was mainly due to the rise in the volume and price of vitamin E products. The 20,000-ton vitamin E project invested by Nengte Technology, a wholly-owned subsidiary of the company, basically reached the design capacity in the fourth quarter. In terms of price, the price of vitamin E has been rising in the fourth quarter, from 41.5 yuan / kg in early September to 130 yuan / kg. At present, the European price is 14-16 euros / kg, which remains high, and the domestic price is more than 100 yuan / kg.

2. The company has obvious cost advantage of vitamin E and has significant competitiveness in the industry in the future.

The direct intermediate trimethylhydroquinone needed for vitamin E synthesis is a key factor in production. The domestic supply of m-cresol and trimethylhydroquinone intermediates is fully controlled by the long-term orders of Xinhe Cheng and Zhejiang Medicine, and the supply is scarce.

A number of vitamin E manufacturers can not be put into production because of the supply of trimethylhydroquinone. Nengte technology adopts a new synthesis route, using p-xylene as raw material to produce trimethylhydroquinone. The source of p-xylene is sufficient, and the price and cost is much lower than the industry average. Isophytic alcohol, another main raw material for the synthesis of vitamin E, has been independently developed by the company for 16 years, and the cost is also much lower than that of its competitors because of its shorter synthesis route, reduced investment in fixed assets and more environmentally friendly and cleaner. We believe that in the short term, it will be very difficult for BASF to resume production in the first half of the year, the vitamin E industry is in a tight balance between supply and demand, companies with rising prices have directly benefited, and a substantial increase in profits in the fourth quarter has been reflected. In the long run, the cost of the company is lower than the average level of the industry, the competitive advantage is obvious, the market share is expanding, and it is expected to become the leader in the field of vitamin segmentation.

3. Maintain the investment rating of "highly recommended-A".

The company currently has a production capacity of 20,000 tons of vitamin E (oil) and is one of the largest producers of vitamin E in China. According to our assumptions, the company's net profit from 2017 to 2019 is expected to be 239 million yuan, 1.422 billion yuan and 1.875 billion yuan, excluding rights, respectively, and the corresponding price-to-earnings ratio is 40 times, 8.9 times and 6.7 times. Maintain the "highly recommended-A" investment rating.

4. Risk hint. The risk of the company's project not being put into production as scheduled, and the customer demand is much lower than the expected risk.