Matters: The company announced its 17-year annual report today. Annual revenue was 4.98 billion yuan, up 40.8% year on year, and net profit was 700 million yuan, up 455.5% year on year. Of these, revenue for the fourth quarter was 1.32 billion yuan, up 193%, and net profit was 180 million yuan, up 104%. The performance forecast for the first quarter of '17 was announced earlier. Profit is expected to be 250-280 million yuan, an increase of 58%-77% over the previous year. In the first quarter, 10,000 tons of Yicao Express, 10,000 tons of VB3, and 25,000 tons of pyridine were newly put into production. One test run was successful, and the progress exceeded expectations. Main opinion 1. The sharp rise in volume and price drove a sharp increase in the company's performance. In 2017, the company's sales volume of paraquat, VB3, chlorpyrifos, imidacloprid, and dimethyclists all increased year-on-year. The overall gross margin also rose 13.5PCT to 31.9%, mainly benefiting from the increase in product prices. After the company acquired Shandong Kexin in '17, the competitive pattern in the paraquat industry improved dramatically. The average price of paraquat mother liquor remained above 20,000 yuan/ton throughout the year. Combined with environmental promotion in the fourth quarter, paraquat prices rose further from 20,000 yuan/ton to 23,000 yuan/ton, and only 13,000 yuan/ton in the same period in 2016. In addition, the prices of the company's products such as diazepam, imidacloprid, chlorpyrifos, and VB3 also rose sharply year on year. 2. The sales rate was basically the same. The increase in R&D investment led to the increase in the management rate. The company's sales rate fell slightly by 0.2PCT to 4.5% year on year, and the management fee rate increased by 0.9PCT to 8.2% year on year. Among them, employee remuneration and R&D investment increased 40 million and 33 million yuan, respectively, and the acquisition of Shandong Kexin caused 42 million stoppage losses. It is expected that with the construction of new production capacity such as Kexin thiamethoxin, this loss will no longer affect the company. The financial rate increased by 0.9PCT to 3.7% year on year, with exchange losses of 20 million yuan and interest expenses increased by 44 million yuan. 3. The company continues to expand its product line to ensure long-term steady development. We expect paraquat to remain the company's main source of profit in '17, accounting for 40%-50% of profit. In the future, with the continuous expansion of the company's subsequent product line, the company's reliance on sales of a single product will be greatly reduced. The company has already started production of 10,000 tons of biochemical Hibacao in the first quarter. The cost is expected to drop 15%-20% compared to the old production capacity. Due to strong demand, the current price is only slightly reduced by 70,000 yuan/ton to 138,000 yuan/ton compared to the previous period. In the first quarter, the company added 10,000 tons of VB3 and self-supply of 3 methylpyridine to 10,000 tons of old VB3 production capacity. The short-term pressure on prices caused by Brother Technology and Red Sun's VB3, which fell back to 30,000 yuan/ton from 50,000 yuan/ton in the previous period, but the combined market share of the two companies was over 40%, and the cost was at the lowest level in the market, and their control over the market was extremely strong. In addition, the company's ammonium phosate production capacity of 3,000 tons is progressing smoothly. At the end of 17, the technical improvement of imidacloprid production capacity was increased by 1,000 tons to 3,000 tons, the proportion of ethyl chloride self-sufficient support for chlorpyrazole was increased from 50% to 70%, the pyrazole ethermycin workshop was successfully built, and prothioconazole and L ammonium phosphate have all entered the pilot phase. 4. Investment recommendations We expect the company's net profit in 18-19 to be 940 million yuan and 1.1 billion yuan respectively, corresponding to EPS of 1.6 and 1.9, respectively. The current stock price corresponds to PE 13 times and 11 times, maintaining the “recommended” rating. 5. Risks suggest that environmental strength exceeds expectations, and progress in new product development falls short of expectations.