Technology integration and professional division of labor have spawned new markets. The lithium battery material equipment localization promoter company is a general contracting engineering technology service provider that provides consulting, design, procurement, construction, operation and maintenance. Traditional businesses serve petrochemicals, modern coal chemicals and other industries. The acquisition of NTU Zijin Lithium Battery in July 2017 officially entered the field of intelligent equipment for lithium battery materials, providing general contracting services for intelligent production lines for lithium battery positive and negative electrode materials. In the field of traditional chemicals, the company has general contracting service capabilities for 100,000-ton production lines. Combining the powder materials research and equipment development technology of NTU Zijin Lithium Battery over the past 30 years, it can enhance the mass production capacity of high-end materials. Benefiting from the rapid growth of the lithium battery business, the company expects net profit of 145 million yuan to 170 million yuan in 2018, an increase of about 34% to 57% over the previous year, and a significant improvement in operating cash flow. As the only listed company currently designing cathode material production lines, the company is also the only EPC general contracting company in the industry. The customer stickiness established through EPC has created unique conditions for the company's own equipment to enter the production line in the future. At the same time, with the capital market, the company has the ability to continuously acquire core technology. It is expected that the proportion of the company's own equipment production will continue to increase, and the industrial chain layout will also be improved, becoming the driving force for the localization of lithium battery materials and equipment in China. Cathode material equipment and production lines need to be continuously upgraded. The electrification trend highlights changes in the company's high-growth NEV subsidy policy, and encourages models with high battery life, high energy density, and low energy consumption. Batteries made of high-nickel ternary cathode materials have a high actual specific capacity and low raw material costs, which is the main development direction of power batteries in the future. We believe that future lithium battery cathode materials are possible from NCM523 to NCM622 to NCM811 to NCA or lithium-rich manganese. Cathode material technology continues to advance, and equipment and production lines need to invest a lot of research effort and continuous upgrading. This is not an industry where production capacity and technology have stabilized. Every technology update means a vacuum in the market and competition for production capacity. It is a new opportunity for companies that build production lines and related equipment. In the long run, electric vehicles are not a simple optimization and upgrade of fuel vehicle technology; they are a travel revolution; they are the only path for human travel tools to develop in the direction of intelligence, lightness, and connectivity. The trend of fuel vehicles being completely replaced cannot be changed, and new energy vehicles will continue to grow rapidly in the future. This means that with the continuous expansion of the company's lithium battery business revenue scale, the company has gradually broken away from the cyclical nature of the original chemical industry and initially had high growth attributes. The effective production capacity utilization rate of the global ternary cathode is about 70%, and the supply of high nickel production capacity is tight. In 2017, global NCM shipments were 202,000 tons, and NCA was 620,000 tons. We believe that due to the increase in the penetration rate of ternary cathode electric vehicles and the rapid development of electric vehicles, it is conservatively estimated that ternary cathode materials (NCM+ NCA) are expected to achieve a demand of 516,000 tons in 2020, with a compound growth rate of 35.8% in 2018-2020. However, the global nominal production capacity of ternary cathodes in 2019-2020 was about 763,000 to 962 thousand tons. Based on the 8-month production capacity climbing cycle, we calculate that the effective production capacity is about 586,000 to 794,000 tons. We expect the effective production capacity utilization rate of ternary cathode in the global market to be around 70% in 2018-2020. Given that the lithium battery industry needs to continuously reduce costs and improve efficiency, and equipment is being phased out rapidly, we believe that although ternary cathode material manufacturers are expanding rapidly, there is only a slight excess in overall production capacity. Currently, the main ternary cathode production line is NCM523. There is a clear trend of high nickelization of new energy vehicles, while new energy vehicles are currently the main growth in the ternary cathode market, so it is expected that high nickel production capacity will be very tight. The investment amount for each 10,000 tons of high nickel is about 600 million yuan, and the company's self-produced equipment is involved in more than 40% of the production process. The investment amount for high nickel is generally around 600 million yuan per 10,000 tons. Among them, about 60% is equipment investment. Overall, the company's self-produced equipment currently participates in more than 40% of the production process, and the value is estimated to be around 30%-40%, and the gross margin will continue to increase as the scale effect increases. The design fee is about 10 million yuan per 10,000 tons, and the gross margin can be as high as 60%. The project management fee is estimated to be between 40 million and 60 million yuan, and the gross margin is about 40%. The company's customers include first-tier materials companies, and the account recovery system guarantees the company's revenue quality. The company's customers include domestic first-tier materials companies, including Dangsheng Technology, Shanshan Co., Ltd., Bamo Technology, Guoxuan Hi-Tech, Keneng Lithium, Betray, and Sandton New Energy. Compared with other competitors, the company has both production experience in lithium battery equipment and the high standard engineering integration capabilities of traditional chemical production lines, which can achieve organic integration of lithium battery equipment and engineering. It is worth noting that without a general contractor, the entire cycle reached 20 to 32 months, while Bailey completed the production line construction for 5,000 tons of high-nickel cathode materials in Hongma, Shaanxi, in 11 months, and is expected to be put into operation in 15 months (expected in late March 2019). Moreover, judging from patents, the company's accumulation in powder materials research and equipment research should also be deeper. In terms of account recovery, the company's lithium battery business package adopts an advance payment system, and 90% of revenue can be confirmed after completion. The company's traditional business has technical advantages, and future performance depends on market improvements. The company's traditional business mainly covers five major business areas, including synthetic fibers, synthetic rubber, synthetic resins, materials, coal chemicals, and oil and gas processing, storage and transportation. The company has leading engineering technical advantages and engineering capabilities in the field of synthetic fiber polyamide product chain engineering design. The engineering performance covers the core links of polyamide product chains such as cyclohexanone, caprolactam, nylon 6 slices, and nylon 6 fibers. Benefiting from the better characteristics of nylon fabrics than other synthetic fibers, nylon production has maintained a low positive growth rate in recent years. In terms of synthetic rubber, due to the oversupply of natural rubber compounded by a decline in automobile sales, demand for synthetic rubber declined, and fixed investment in the industry also declined. In terms of synthetic resins, at present, China still imports a large amount of synthetic resin every year. The domestic self-sufficiency rate in 2016 was 76.53%. The degree of external dependence is still high, and there is still some room for development in the future. Profit forecast and rating We expect to add about 390,000 tons of domestic production capacity from 2018 to 2020, with a total market space of 23.4 billion yuan. As a leader in the design and construction of domestic cathode materials production lines, the company has a large competitive advantage. Combining the company's current lithium battery order volume of 2.2 billion in 2018 and the company's market position, we expect the company to achieve order volumes of 16.1, 36.7 and 4.68 billion yuan in 2018-2020. We expect the company to achieve operating income of 882, 15.16 and 2,079 billion yuan in 2018-2020, with net profit of 151, 2.65, and 366 million yuan respectively, with year-on-year increases of 39.09%, 75.24%, and 38.04% respectively. The corresponding EPS for the year 18 to 20 is 0.48, 0.84, and 1.17 yuan, respectively, corresponding to the current stock price PE of 42, 24, and 17 times, respectively. The initial rating is given a “buy” rating. Risk warning 1. The new energy subsidy policy falls short of expectations; 2. Competition in the industry intensifies; 3. Account recovery falls short of expectations.