Main points of investment:

2017 of the company realized EPS0.60 yuan, which is in line with our expectations. The total revenue in 2017 was 896 million yuan, an increase of 9.12% over the same period last year. The net profit returned to home in 2017 was 120 million yuan, an increase of 5.65% over the same period last year, which is in line with our expectations. The company's 17-year weighted average ROE is 14.85% (16-year 17.76%).

Tax changes and the lower-than-expected release of new plant capacity affect the company's performance growth: the company's performance growth slowed down, mainly because 1) the income tax rate was increased from 15% to 25% after the relocation of the new plant, excluding income tax growth, the company achieved operating profit of 158 million in 17 years, an increase of 24% compared with the same period of last year. 2) after the new factory was relocated, the production capacity was debugged for a period of time, affecting the peak season of production and sales in the third quarter.

The market space is big, the company has the growth. In terms of sub-structure, the company mainly focuses on automotive lubrication business, with annual sales of 50200 tons, year-on-year growth of 6.11%, revenue of 750 million, year-on-year increase of 12.28%, gross profit margin of 34.57%, a decrease of 3.46%; industrial lubricating oil sales of 7011 tons, an increase of 26.43% over the same period last year, revenue of 71.08 million, an increase of 14.4% over the same period last year, and a gross profit margin of 19.6%, a decrease of 9.28% Antifreeze sales of 9805 tons, revenue of 53.99 million, down-1.76% year-on-year, gross profit margin 20.64%, a decrease of 11.9%. According to the statistics of Foss Oil Group of Germany, the global demand for lubricating oil reached 35.7 million tons in 2017, with nearly 40% of consumption in the Asia-Pacific region and large market space. In 2017, the total domestic output of lubricating oil exceeded 6.9 million tons, an increase of 1.01% over the same period last year. The company's products are growing faster than the industry and are expected to continue to grow.

With the start of the new plant, the release of capacity is expected to lead to performance growth. The company locates the retail market of the automotive aftermarket, and by the end of 2017, the number of cars in China has reached 217 million. The growth rate of car ownership in China has exceeded the growth rate of new cars, providing support for the consumer demand for lubricating oil in the automotive aftermarket. From the perspective of the development direction of the industry, the quality of automotive lubricating oil has changed to high-end, which is in line with the company's positioning strategy of high-end. The company's fund-raising project was officially put into production in September 2017, and the subsidiary's annual production capacity of 80,000 tons of lubricating oil, 20,000 tons of antifreeze and 2000 tons of brake fluid will be gradually released, and the original capacity bottleneck will be broken after the new plant is put into production. the company's subsequent efforts in the marketing channel are expected to gradually digest capacity and achieve performance growth.

Growth in the first quarter compared with the peak of the same period last year: the company reported 18Q1 operating income of 283 million, operating profit of 62 million, basically the same as the same period last year, and home net profit of 49 million, up 2.82% from the same period last year. March is the peak marketing season. Due to the high annual profit in the first quarter of last year due to replenishment demand and low raw material costs, the price of Q1 automotive lubricating oil increased by 6.62%, while the price of raw material base oil rose 11.61% compared with the same period last year. Fixed assets increased from 79 million to 371 million, and Q1 is expected to increase depreciation by about 2.7 million year-on-year, but still achieve growth.

Downgrade the profit forecast and maintain the "buy" rating: taking into account the impact of the new plant capacity and the temporary uncertainty of sales expansion, we downgrade the EPS forecast for 18-19 to 0.65 yuan and 0.89 yuan respectively (the pre-adjustment EPS forecast is 0.87 yuan and 1.00 yuan respectively), and add 1.02 yuan to the 2020 EPS forecast, corresponding to 21x, 15x and 13x for 18-20 years. We are optimistic about the company's long-term growth and maintain its "buy" rating.