The pace of full coverage of ethanol gasoline is accelerating, and the industry ushered in a period of rapid expansion! In September 2017, 15 departments including the Development and Reform Commission and the Energy Administration issued the “Implementation Plan on Expanding the Production of Biofuel Ethanol and Promoting the Use of Ethanol Gasoline for Vehicles”, planning that Beijing-Tianjin-Hebei and surrounding areas, the Yangtze River Delta, Pearl River Delta and other key air pollution prevention regions will start promoting fuel ethanol in 2018, achieve full coverage in 2019, and achieve the goal of nationwide fuel ethanol coverage in 2020. Entering 2018, in June, Tianjin announced that it would promote the full use of fuel ethanol by the end of August; on August 22, the executive meeting of the State Council determined the overall layout of the biofuel ethanol industry and decided to expand the promotion and use of automotive ethanol gasoline in an orderly manner. In addition to 11 pilot provinces including Heilongjiang, Jilin, and Liaoning, it was further promoted in 15 provinces including Beijing, Tianjin, and Hebei this year. We believe that fuel ethanol is being promoted at an accelerated pace, and the golden period for capacity expansion has arrived. According to statistics from Longzhong Chemical, there is still a production capacity gap of more than 8 million tons nationwide, and leading enterprises will directly benefit during the production capacity expansion period. Crude oil prices continue to rise, raw materials are at a low level, fuel ethanol profits are high, and it is expected to continue to rise in the future! Driven by rising crude oil prices, the settlement price of fuel ethanol rose rapidly: as of October 9, Brent crude oil futures reached 85 US dollars/barrel, and WTI crude oil futures reached 74.96 US dollars/barrel, with an average price of 79.98 US dollars/barrel, up 25.92% from the beginning of the year. At the same time, according to our estimates, the theoretical settlement price of fuel ethanol has already exceeded 7,700 yuan/ton, and after tax deduction, it has reached about 6,700 yuan/ton, up more than 1,000 yuan/ton from the beginning of the year. High stocks suppress corn prices, and fuel ethanol costs are still low: suppressed by high inventories, the price of corn auctioned is low. The price of corn auctioned in September was around 1450-1,550 yuan/ton. It is expected that next year's corn auction will rise, but the increase will be limited. Furthermore, according to the semi-annual report, the company is actively experimenting with the preparation of aged rice with ethanol, which is expected to further reduce costs. According to the current auction price of corn, the full cost of the company's fuel ethanol is estimated to be about 5,700 yuan/ton. Based on this calculation, and considering that when the settlement price of fuel ethanol is high, there will be a certain discount. Currently, the company's theoretical profit for fuel ethanol is about 800 yuan/ton, which is rich in profit, and is expected to continue to rise in the future as crude oil prices rise. Asset injection from leading fuel and ethanol leaders continues to advance, and production capacity continues to expand, which is expected to usher in a similar rise in volume and profit! In October 2018, the company's issuance of shares to purchase assets was approved by the Securities Regulatory Commission. After the company completes asset injection, the company's actual equity fuel ethanol production capacity will exceed 1.2 million tons and 200,000 tons of alcohol production capacity. The company announced on July 30 that it will establish a subsidiary in Tianjin to expand the fuel ethanol business, marking the beginning of the company's production capacity expansion. It is expected that the company's production capacity will continue to expand in the future. Combined with the rise in fuel ethanol prices brought about by the rise in crude oil prices, the company will experience a sharp rise in volume profit, and the investment value will be evident! Giving a “buy” rating: considering that crude oil prices exceeded expectations, we raised the average oil price forecast for 2019-2020 from 75 US dollars/barrel to 85 US dollars/barrel. Considering that the company has begun to expand production by new subsidiaries this year, the production in 2019-2020 was raised from 800/850,000 tons to 900/1.2 million tons, respectively, regardless of asset injection. Regardless of asset injection, the company's net profit from 618/6.74/716 million yuan to 618/9.05/12.07 billion yuan in 2018-2020. If the impact of asset injection is considered, and assuming that income and profit from asset acquisitions starting in '18 are combined throughout the year, the profit for preparing for the exam was raised from 1,443/14.91/1,804 billion yuan to 1,443/18.77/2,195 billion yuan, corresponding to EPS of 0.78/1.02/1.19; a “buy” rating was given. Risk warning: 1. The restructuring did not meet expectations; 2. Integration risk; 3. Price risk.