Incident: The company released a report for the third quarter of 2018. The company achieved operating income of 1,356 million yuan (YoY +24.75%) and net profit to mother of 151 million yuan (YoY +75.58%) in the first three quarters. Among them, Q3 had quarterly revenue of 460 million yuan (YoY +32.18%, Q0Q -9.63%); net profit to mother was 63 million yuan (YoY +125.00%, Q0Q +23.53%). The three-item cost rate for the Q3 quarter was 10.72%, an increase of 1.27pct over the previous quarter, mainly due to the increase in R&D expenses. The Q3 gross profit margin was 13.86%, up 4.57pct from the same period last year. The increase in the company's performance is mainly due to product price increases due to stricter environmental protection. Overall, the performance slightly exceeded market expectations. Comment: Product price increases drive faster performance. The reported growth rates of the company's revenue and net profit to mother were 21.24% and 51.72%, and the three-quarter report was 24.75% and 75.58%, both of which increased. Based on the analysis of operating data, we determined that the increase was mainly due to the increase in the price of the company's products. Domestic environmental protection is becoming stricter. Affected by environmental protection policies along the Yangtze River, production capacity of some large organic pigment manufacturers is limited, and orders have begun to shift to leading regulatory companies that have qualified environmental protection. The upward trend in product prices is obvious. The price of the company's main product, the Yongguhuang series, went from 52,000/ton in the first quarter to about 59,800 per ton; the unit price of the high-end product quinacridone has risen from 173,000 per ton to 188,400 per ton. We judge that in an environment where environmental policies are not clearly loosened, the industry is strongly willing to integrate, and the prices of major products will remain high for the next 2 years. Inventory is sufficient, and continued growth in performance can be expected. The company's Q3 inventory balance was 499 million, up from the Q2 balance. Appropriately hedging the cost pressure brought about by rising raw material prices due to environmental protection policies also helps the company to continue to expand its market share through environmental dividends. 3,000 tons of high-performance organic pigments were put into production at the end of the year, and the relay company grew. The company's fund-raising project of 5,000 tons of environmentally friendly organic pigments was put into operation in March of this year, and the last batch of 3,000 tons of high-performance organic pigments will also be put into production by the end of the year, which will stabilize the company's position as the number one high-performance organic pigment manufacturer in China. The steady expansion of production capacity and the gradual release of high-end products have opened up space for the company to continue to grow. Profit forecast and rating: The company's revenue for 2018-2020 is estimated to be RMB 1,826 million, RMB 2,250 million and RMB 2,443 billion respectively, with net profit attributable to mother being RMB 221 million, RMB 323 million and RMB 400 million respectively. The corresponding EPS was 0.98 yuan, 1.4 yuan and 1.78 yuan respectively. Corresponding PE was covered for the first time at 13X, 9X, and 7X, respectively, giving a “buy” rating. Risk warning: sharp drop in product prices; safety and environmental production risks, etc.