Oil prices rose again, and Q3 earnings continued to rise. In the first three quarters of 2018, the company achieved revenue of 5.01 billion yuan (up 9% year on year), imputed net profit of 340 million yuan (up 58% year on year), and deducted non-attributable net profit of 314 million yuan (year on year turned loss into profit). Among them, Q3 achieved non-attributable net profit of 138 million yuan in a single quarter (a year-on-year loss turned profit, an increase of 9% over the previous year), setting a new quarterly profit high. The significant increase after deducting non-profit profits was mainly due to the rise in the price of fuel and ethanol driven by the rise in oil prices, and the price of raw materials such as corn remained stable in 18Q3. During the reporting period, international crude oil prices rose 45% year on year to 75.84 US dollars/barrel; the company's overall gross margin increased 1.8 percentage points month-on-month and 12 percentage points year-on-year to 20.2%. Asset injection is imminent, and a leader in deep corn processing has been established. The company announced that it intends to issue non-public shares to acquire 100% of Biochemical Energy's shares, 100% of Biochemical's shares, and 100% of Huali Investment's shares. After the transaction is completed, COFCO Biochemical will become a unified platform company for deep processing of corn, integrating scientific research and production under the COFCO Group. It is also the largest fuel ethanol manufacturer in China. The total production capacity of COFCO Biochemical and Biochemical Energy's fuel ethanol is about 168,000 tons, accounting for about 65% of the country's fuel ethanol production capacity. In 2017, COFCO's biochemical and biochemical energy production was approximately 750,000 tons and 450,000 tons respectively. After deducting related transaction volumes, the total was about 1.1 million tons. Oil prices are expected to remain high, which is beneficial to the benefits of fuel ethanol processing. In 2017, international crude oil prices averaged about $52 per barrel. Since 2018, due to falling crude oil inventories, increased expectations of geological risk factors, and strong signals of economic growth, crude oil prices have continued to rise since $65 per barrel and once exceeded $84.5 per barrel in October. As of October 26, the price of Brent crude oil was $77.62 per barrel. Meanwhile, in its October report, the US Energy Information Administration (EIA) once again raised its Brent crude oil price forecast for 2018 and 2019 to 74.43 yuan/barrel and 75.06 yuan/barrel. In other words, international crude oil prices are expected to remain high above 70 yuan/barrel. According to our estimates, for every 10 US dollars/barrel increase in oil prices under other conditions, COFCO Biochemical's performance can increase by about 440 million yuan. If the injection of biochemical energy is considered, the performance can increase by more than 640 million yuan. The promotion of fuel ethanol is expanding, and the opening up of demand favors the long-term prosperity of the industry. At the end of 2017, 15 departments including the National Development and Reform Commission, the Ministry of Energy, and the Ministry of Finance jointly issued the “Implementation Plan on Expanding Biofuel Ethanol Production and Promoting the Use of Ethanol Gasoline for Vehicles”. According to the plan, by 2020, the whole country will basically achieve full coverage of ethanol gasoline for vehicles. Theoretical estimates suggest that full coverage will increase the demand for fuel ethanol to 11.98 million tons, four times the current domestic production capacity. It is expected that production capacity construction projects of relevant manufacturing companies will be approved at an accelerated pace. However, after completing the integration, the company is expected to have even more significant advantages as the absolute leader in domestic fuel ethanol. risk factors. Policy changes, the rise in oil prices fell short of expectations, the price of corn surged beyond expectations, and the progress of asset restructuring fell short of expectations. Profit forecasts and valuations. The continued rise in oil prices is expected to drive revenue growth in the company's fuel ethanol business. Without considering the impact of asset injection on the company's profit, considering that the company's performance in the first three quarters was slightly lower than expected, the 2018 EPS forecast was lowered to 0.63 yuan (previously 0.78 yuan), and the 2019/20 EPS forecast was maintained at 0.65/0.29 yuan. Considering the certainty of the upward trend in the fuel ethanol industry and the scarcity of related investment targets, combined with asset injection and the company's historical valuation, 2018 was valued 30 times and the target price was lowered to 18.9 yuan to maintain the “buy” rating.