The company is a leading isothiazolinone fungicide company. The company is the largest isothiazolinone fungicide company in China and even Asia. Its products cover several major systems such as CIT/MIT, MIT, OIT, DCOIT, and BIT, providing sterilization solutions and compound products for industrial water treatment, papermaking, and daily chemicals. The company has three production bases (Dalian Lushun base, Dalian Songmudao base, Shenyang base) with a production capacity of about 30,000 tons. With comprehensive advantages in terms of production capacity scale, product quality, and cost advantages, the company cooperates with giants such as Dow Chemical, Germany's Lanxess, and America's Lonza. In addition to covering all provinces in China, the products are also exported to Europe and America. Demand for industrial biocides is growing steadily, and supply contraction or price increases. In 2017, global industrial fungicide production was about 1.45 million tons, with a market size of about 5.9 billion US dollars. The domestic market size was about 11.11 billion yuan, and the demand growth rate exceeded 8%, higher than the global 3% growth rate. Isothiazolinone fungicides have excellent performance and have become mainstream non-oxidizing fungicides. Due to factors such as cost and environmental protection, international giants such as Dow Chemical and Sol have drastically reduced the production of raw materials and switched to foreign procurement. They have focused on providing formulations and technical services, and the global production capacity of isothiazolinone fungicides is gradually shifting to developing countries such as China. Furthermore, due to the discontinuation of production by Jiangsu Fuvia and Dalian Xingyuan Chemical, the contraction in supply in the industry is expected to push up prices, and the company's performance is flexible. There is a clear shortage of o-chlorobenzonitrile, and prices may rise sharply. O-chlorobenzonitrile is an important organic synthesis intermediate. Downstream, including BIT, disperse dyes, and sartans, etc., the total domestic demand is expected to exceed 30,000 tons. The safety incident in Yancheng affected Lianhua Technology and Jiangsu Changhai's total production capacity of 20,000 tons, accounting for about 2/3 of the domestic market. The price of o-chloroaniline is expected to rise further under supply restrictions. The company currently has 3,000 tons of o-chlorobenzonitrile, adding 7,000 tons at the right time to start production. According to the estimated production capacity of 10,000 tons, the product price has increased by 10,000 yuan/ton, the annualized increase in performance is about 70 million yuan, and the performance is very flexible. Fund-raising projects improve the industrial chain and break power bottlenecks The company's comprehensive production capacity utilization rate for fungicide products in 2018 has reached 98.13%. With existing production capacity already being fully utilized, the overall shortage situation has not changed. The problem of insufficient production capacity has always been the main bottleneck in the company's more rapid development until the fund-raising project is put into operation. With the commissioning of the CIT/MIT 12,000 tons, OIT400 tons, BIT2500 tons, and B/F nitrile intermediates 10,000 ton projects, the company has entered the fast track of development. In addition, out of the company's three production bases, the Shenyang base covers an area of 130,000 square meters and currently uses 47,000 square meters. In addition to the company's low balance ratio and good operating cash flow, there is still plenty of room for production expansion. Profit forecast and investment advice: With the release of production capacity for products such as CIT/MIT, o-chlorobenzonitrile, and BIT in the company's fund-raising projects, compounded by product price increases brought about by contraction in industry supply, the company's performance is expected to increase significantly. We expect the company's net profit in 2019-2021 to be 3.99/4.53/385 million yuan, and the current price corresponding to 2019 PE is 12.7 times. Referring to the PE valuation of comparable companies (15.7 times in 2019), we gave the company a target price of 33.44 yuan/share, covering the “buy” rating for the first time. Risk warning: Fund-raising projects are progressing less than expected, and product prices are at risk of falling.