Event: The company released its 2018 annual report and achieved annual revenue of 528 million yuan, an increase of 28.71% over the previous year; net profit of the mother was 145 million yuan, an increase of 44.80% over the previous year. The first quarter of 2019 achieved revenue of 137 million yuan, an increase of 8.96 million yuan over the previous year, and net profit of 31.934 million yuan, an increase of 16.92% over the previous year. The sharp rise in volume and price led to a sharp improvement in the profitability of nitrile: the year-on-year increase in 2018 performance was mainly due to the year-on-year increase in the company's product prices and sales volume. In 2018, prices of various industrial fungicide products rose slightly. CIT/MIT, MIT, OIT, and DCOIT rose 4.15%, 4.19%, 4.55%, and 5.31% year on year respectively, and total sales volume increased 6.90%; the price of the chemical intermediate F nitrile rose 51.71% year on year, and sales volume increased 772.08% year on year. The subsidiary Shenyang Baiao is responsible for the production of F-nitrile. It lost 5.4252 million yuan in 2018, a decrease of 15.4293 million yuan from 2017. The volume and price of F-nitrile increased dramatically, and profits improved dramatically. In 2019Q1, product prices continued to rise year on year but declined slightly month on month. The gross profit margin was 46.00%, up 4.1 pct year on year. Industrial fungicide fund-raising projects have been put into operation one after another, which is expected to solve the problem of insufficient production capacity and increase the scale effect: According to the announcement, the company is the largest manufacturer of isothiazolinone industrial fungicides in China and even Asia. The comprehensive capacity utilization rate has reached 98.13%. The problem of insufficient production capacity is the biggest obstacle to improving the company's operating performance. At the end of 2018, the fund-raising project “CIT/MIT with an annual output of 7500 tons, 500 tons of OIT, and 2000 tons of BIT series product construction projects” was completed. OIT was put into operation in mid-2018, CIT/MIT and BIT were officially put into operation in April 2019, and the company's total production capacity of isothiazolinone drugs reached 30,000 tons. For the first time, the company has BIT's production capacity and made up for shortcomings, which is expected to be an important driver for the company's performance improvement in 2019. Demand for industrial biocides is expected to maintain a growth rate of around 7% in the future. Overseas giants continue to cut raw drug production capacity, small domestic enterprises continue to withdraw, and the company is in the best period of development. There was a gap in the supply of F-nitrile, and the price increase further strengthened the company's performance: according to the company's announcement, in 2018, due to the continued tightening of environmental policies and other reasons, there was a gap on the supply side of F-nitrile intermediates, and product prices rose from 19,000/ton in '17 to 29,000/ton in '18. The company's annual B/F nitrile intermediate project was put into operation in September 2017, and the F-nitrile expansion project with an annual output of 7000 tons is scheduled to be officially put into operation in May 2019. Affected by the 3.21 explosion in Xiangshui in 2019, the prices of F nitrile and BIT fluctuated greatly. Subsequent security inspection actions will further affect the supply of F nitrile. We expect prices to remain high in the short term, with great flexibility. Investment advice: Net profit for 2019 to 2021 is expected to be 2.4 billion yuan, 3.2 million yuan and 3.7 billion yuan respectively, corresponding to PE of 21, 16 and 14 times, maintaining a buy-A rating, and a target price of 33 yuan for 6 months. Risk warning: Fluctuations in raw material prices, downstream demand falling short of expectations, etc.