Event: October 11, 2018, Yangfan New Materials released the third quarter results forecast: profit for the first three quarters of 2018 was 103-113 million yuan, up 115-135% year on year; of these, profit for the third quarter was 3775.71-42.689 million yuan, up 55-75% year on year. The increase in performance is mainly due to 1) the steady rise in product prices under high technology barriers; 2) the gradual increase in the profit of pharmaceutical intermediates (thiol compounds); and the overall performance is in line with expectations. Key investment points: Domestic photoinitiators and thiol compounds, with significant advantages in integrated production. The company's main products are photoinitiators and thiol compounds and their derivatives. In terms of photoinitiators, the company's main products include 907/369/TPO/184, etc., of which 907 accounts for more than 60% of the global market share (the company's interim report revealed). In terms of thiol compounds, the company is the only company in China. It has more than 500 product categories and high technical barriers. The main global competitor is Sumitomo Chemical of Japan. There is good synergy between the company's two main businesses. Thiol compounds are one of the core raw materials of photoinitiators, such as photoinitiator 907. Everything from production of basic raw materials to sales of finished products is controlled by the company itself, and integrated production guarantees cost advantages and risk resistance. Benefiting from stricter environmental protection, rising prices of main products, and a significant increase in profitability. Domestic environmental protection has become stricter in recent years. The shutdown of many intermediate companies has led to insufficient market supply. The prices of the company's photoinitiators and thiol compounds have all risen sharply, and profitability has increased. According to the company's May announcement, the photoinitiator 1173 rose from 35,000 yuan/ton in 2017 to 60,000 yuan/ton in May, an increase of 71.4%; the photoinitiator TPO increased from a low level of 100,000 yuan/ton to 20-30 million yuan/ton during the same period, an increase of more than 100%. Under the trend of normalization of environmental protection and high pressure, the high prosperity of the company's products is likely to continue. The 1 billion yuan fundraising project has a large market space, and the company's growth path is clear. With the rapid development of China's light-curing industry, the photoinitiator market supply is seriously insufficient. Currently, the company's 3,000-ton production capacity accounts for only about 10% of domestic market demand (revealed in the 2018 Interim Report). Therefore, the company changed its original IPO fundraising project to a “29,000t/a photoinitiator and pharmaceutical intermediate project”, with a total investment of 1 billion yuan. The construction site was built in Alashan Economic Development Zone in Inner Mongolia. The new project includes 11,000 tons of photoinitiators, and the rest are thiol compounds and related supporting raw materials. The project is divided into two phases. Construction of the first phase is expected to be completed within two years and put into operation by the end of 2019; the second phase of the project is expected to be completed in about 5 years. After delivery, the product price in 2017 can achieve revenue of 950 million yuan and net profit of 270 million yuan. Profit forecast and investment rating: Give a “buy” rating. The company is a leader in the photoinitiator and thiol compounds industry, benefiting from the normalization of environmentally friendly high pressure, and the Inner Mongolia project will open up space for the company to grow after it is put into operation. The company's competitive advantage and growth path are clear. We are optimistic about the company's long-term development. We expect the company's EPS in 2018-2020 to be RMB 1.17, 1.42, and 2.12 yuan/share, respectively, and the PE corresponding to the current stock price will be 20.38, 16.69, and 11.22 times, respectively. Give a “buy” rating. Risk warning: falling product prices; competitor expansion; production safety and environmental risks; project construction progress falling short of expectations.