The company will convert Lubao Xinghai's 471 million yuan debt to 15% of its shares. The in-depth layout of companies in the coal chemical sector while actively expanding the lithium battery sector business while consolidating and deepening industry understanding of the deep processing business of coal chemical products is conducive to the company's high level of business ties and in-depth cooperation with the company. The implementation of debt-for-equity swaps successfully mitigates receivable risks: According to the company's announcement on November 24, Bailey Technology will invest in Lu Bao Xinghai's 470 million yuan bond rights and obtain 15% of the latter's shares. Lubao Xinghai is the leading platform for deep processing of coal chemical products under Lubao Group. Its fine chemical business is an important direction for the upgrading and transformation of the coal chemical industry, and the prospects are broad. After the company completes debt-to-equity swaps, the receivables burden brought about by traditional chemical EPC business will be greatly reduced, and receivables are expected to drop sharply from $940 million in Q3. The investment agreement includes performance commitments and cash compensation agreements to provide strong guarantees for the company's earnings. The investment agreement stipulates that Lu Bao Xinghai's performance promises that net profit for 2019 and 2020 will not be less than 249 million yuan and 330 million yuan, respectively. If 90% of the performance promise cannot be fulfilled, Bailey Technology will receive corresponding cash compensation according to the situation where the performance promise is 70%-90% or less than 70%. According to the announcement, Lu Bao Xinghai's net profit in 2017 reached 67 million yuan, and the net profit for the first three quarters of 2018 reached 50 million yuan. The cash compensation agreement provides a strong guarantee for Bailey Technology's earnings. The subsidiary took the initiative to terminate the “problem contract” of the traditional chemical business, and the company concentrated on developing the cathode production line business. The subsidiary actively terminated the “problem contract” of the traditional chemical business, which did not have a significant adverse impact on the company's financial situation, demonstrating the company's determination to concentrate on developing the cathode production line business: On November 18, 2014, the subsidiary Wuhan Refining and Chemical Engineering Design Co., Ltd. and Dongying Huachi New Energy Technology Co., Ltd. signed a general contract for the 300,000 tons/year anthracene oil hydrogenation project and equipment and materials customization contract, with a total price of 528 million yuan. Since then, due to technical risks in the use of raw materials provided by Dongying Huachi, the project progressed slowly. The parties signed the above contract termination agreement on November 23, 2018. Since the contract is almost never actually carried out, its termination will not have a significant adverse impact on the company's financial situation. The project was signed before the company went public. It has been going on for four years, and it has had little impact on the company's current expected earnings. Furthermore, the martial arts project has confirmed revenue of 6.3085 million yuan and received a payback of 6.3085 million yuan. Signed a major contract with Shaanxi Hongma to consolidate the leading position in the industry. According to the company's announcement on November 27, 2018, the company and Shaanxi Hongma Technology Co., Ltd. signed the “Shaanxi Hongma Technology Co., Ltd. 10,000 tons/year lithium-ion power battery multi-cathode material project (phase II) project general contract”. The total contract price reached 560 million yuan (tax included), of which: 10 million yuan for engineering design fees, 350 million yuan for customized procurement of equipment and materials, 148 million yuan for construction, installation and construction costs, 53 million yuan Other expenses. The total contract price accounted for about 143.53% of the company's total engineering contract business revenue in 2017. The signing of the contract is expected to have a positive impact on the company's 2018 and 2019 performance. According to the contract, construction of this project began on November 26, 2018. It is expected that the project will take about 9 months, and the machinery will be completed on August 21, 2019. Shaanxi Hongma will pay Baili Technology 3 million yuan in engineering design fees within 14 days of commencement of construction, and 10 million yuan in advance payment within 30 days for the operation of the project. After that, procurement fees and construction costs will be settled on a monthly basis. Within 14 days after the completion of the engineering design, Shaanxi Hongma will pay 6 million yuan in engineering design fees; if there are no design quality issues within one year, the company will receive the remaining 1 million yuan in design fees. The above agreement helps the company to use advance payments and monthly settlement payments to purchase relevant materials, pay related labor costs, and maintain a healthy and steady cash flow. Previously, the company signed a general contract with Shaanxi Hongma for the first phase of the project. According to investor exchange records published by the company, this phase of the project has completed the entire project and production line design work, procurement and bidding work for equipment and materials, and construction of the main structure of the plant. Shaanxi Hongma promptly signed a general contract for the second phase of the project with the company, which shows how satisfied it is with the overall business level of the company's cathode materials line. Continued cooperation with Shaanxi Hongma will accumulate rich experience for the company in developing ternary material production line design and engineering general contracting business for lithium-ion power batteries, and further enhance the competitiveness of the company's main business in the domestic market. Continuing to recommend Bailey Technology, the company plans to acquire Hantec and build the world's number one supplier for cathode production lines: after debt-for-equity swaps, accounts receivable will drop sharply, the company's financial situation will be better improved, and its profitability and competitiveness in the same industry will improve. 1) The sharp increase in advance payments indicates that the company's lithium battery revenue is expected to increase significantly. The company's advance revenue for the first three quarters of 2018 reached 362 million yuan, compared to only 112 million yuan in the same period last year, an increase of 22.3% over the same period last year. According to the company's advance payment financial data, we judge that the company had more impressive new orders in the third quarter; 2) As of June 30, 2018, the company's current lithium battery business contract amount reached 2.2 billion yuan. It is expected that starting in the second half of the year, the company's lithium battery business revenue will grow rapidly; according to the inference in (1), the new Shaanxi Hongma order signed with the company mentioned above, the company's rapid growth in business revenue is gradually being realized. 3) The plan is to acquire Hantec, a leading international cathode complete line provider, with strong cooperation to open up international markets and expand business areas: Over the past 20 years, Hantec has collaborated with well-known lithium battery materials companies such as Umicore (Korea), Samsung SDI, LG Chem, L&F, ECOPRO, POSCO, and COSMO. The cooperation between the two will help Hantec open up a huge market in China, enhance the technical strength of the company's lithium battery business, and expand business areas such as precursors. Profit forecast and investment recommendations: We expect the company's operating income in 2018-2020 to reach 13.98, 24.97, and 3,067 billion yuan respectively, and net profit of $250, 4.81, and 623 million yuan respectively. The current stock price corresponding to PE is 18.14, 9.42, and 7.27X times, respectively. Risk warning: major changes in the new energy policy; the progress of the Shaanxi Hongma project falls short of expectations; the progress of Hantech's acquisition falls short of expectations; the performance of participating companies is uncertain, or it falls short of performance promises