Matters: The company released its 2017 annual report on April 9, 2018. During the reporting period, it achieved operating income of 4.974 billion yuan, +40.61% year-on-year; net profit of 698 million yuan, +451.81% year-on-year. The company plans to pay 5 out of 10. Comment: The industry is booming, and product price increases have driven a sharp increase in performance. Benefiting from the strict environmental policy environment in 2017 and the recovery of international agricultural products, the domestic pesticide market has rebounded sharply. As the world's largest pyridine base company (62,000 tons of pyridine base production capacity, more than 20% market share) and an integrated CCMP industry chain manufacturer, the company relied on full investment in early HSE and leading process levels to fully benefit from price increases in the pyridine industry chain and the 3-methylpyridine industry chain. Specifically, the average prices of the company's main products, pyridine and paraquat in 2017, increased by 42.55% and 83.7%, respectively. Prices of other products such as VB3 and 3-methylpyridine also rose significantly. The company achieved a significant improvement in gross margin through its own raw material production capacity. The gross margin of the pesticide business reached 32.07% in 2017, an increase of 12.46 percentage points over 2016, achieving a significant increase in performance. Strengthen Kexin Holdings, deepen market share, and continue to increase profits. On April 8, 2018, the company signed an “Share Transfer Agreement” by consensus with Liu Zhenfang and Xie Deming, and agreed to transfer 7.84% of Shandong Kexin's shares held by Liu Zhenfang and Xie Deming with their own capital of 6.8059 million yuan and 3.7762 million yuan respectively. After the transaction is completed, the company will hold 82.19% of Shandong Kexin's shares. The strengthening of Shandong Kexin's holdings this time is conducive to enhancing the Kexin governance system and management mechanism. At the same time, it will also continue to increase the company's market share in the paraquat, thiamethoxam and other product markets, and will further increase the company's profits in the context of the current boom in the pesticide industry. Under the new normal of environmental protection and high pressure, there is still room for growth in the pyridine industry chain. The company has always focused on building seven downstream product chains of pyridine alkali: 1) 3-methylpyridine-VB3 product chain; 2) 3-methylpyridine chloride (CCMP) product chain; 3) 3-methylpyridine fluorochloride product chain; 4) pyridine-paraquat - paraquat - paraquat gum product chain; 5) pyridine-bipyridine-dimethylene chloride product chain; 6) pyridine-pyridine chloride product chain; 7) polymethylpyridine chloride product chain; 7) waste water recycling polymethylpyridine product chain. On the one hand, strict supply-side restrictions will further drive back backwardness and irregular production capacity within the industry, and the company's market share is expected to increase further; on the other hand, under the current new normal of strict environmental protection, the previously relatively irregular supply of pesticide intermediates will continue to be cleared, and the company's integrated industrial chain strategy will continue to fully benefit from the contraction on the raw material side of the industry. We believe that the company's profit level is expected to continue to improve due to the increase in its own share and the favorable situation of high industry prosperity. Long-term optimism about strategies such as “biotechnology+big data” and global sales layout. The company has gradually used the “biotechnology+big data” strategy to achieve the transformation from a traditional chemical pesticide company to a bioengineering agricultural supplier. In addition, the company plans to acquire 60% of the shares of Ruralco, which is FMC's distributor in Argentina. The company is expected to accelerate the global sales channel layout and brand marketing pace, and accelerate its expansion on the market side. With the above and other long-term strategies, the company is expected to continue to adapt to the “high quality” development trend of the industry and improve its profit structure. risk factors. Paraquat gels have been banned; development of new products downstream of the pyridine industry chain has been blocked. Earnings forecasts and ratings. According to the 2017 annual report data, we slightly lowered the company's net profit forecast for 2018/19/20 to 9.98/11.49/1,470 billion yuan (the original forecast was 10.99/1,198 billion yuan in 18/19), corresponding to EPS of 1.72/1.98/2.33 yuan (the original forecast was 1.89/2.06 yuan in 18/19), maintaining the target price of 30 yuan based on 18 times PE in '18, maintaining the “buy” rating.