Event: the company released its 2018 annual report and realized operating income 2. 6.5 billion, year-on-year-17. 48%, with a net profit of 1630. 890000 yuan, compared with the same period last year. 97%. In 2018, the domestic market of oxalic acid was affected by environmental production restrictions and cyclical fluctuations in the downstream industry, with sales of 7% in 2018. 730000 tons, down 13 percent from 2017. 20%, resulting in a decline in performance. The company released its quarterly report in 2019, achieving operating income of 1. 1 billion yuan, compared with the same period last year. 70%, realizing the net profit of 753%. 600000 yuan, + 7 compared with the same period last year. 80%, deducting the non-return net profit of 733. 600000 yuan, compared with the same period last year. 37%.

The supply and demand of industrial oxalic acid is improving, and the price continues to rise. Industrial oxalic acid supply and demand is improving, the price of wind products continues to rise from a low of 3150 yuan / ton at the beginning of the year to 4060 yuan / ton, and is expected to rise further. In addition to the traditional fields of medical synthesis and rare earth mining, oxalic acid has a huge space in the mining of non-rare earth (copper ore, iron ore, etc.). Oxalic acid gradually replaced the original highly polluting materials such as ammonium sulfate. During the reporting period, the company obtained a number of orders for oxalic acid in South America. The amount of oxalic acid used per ton in mining is 20-50kg. After oxalic acid is completely replaced in this field, the demand for oxalic acid in a single mine with an annual output of 1000 million tons will reach 20-50,000 tons per year. Oxalic acid is currently being tried in the field of copper mining in China, if the application is popularized. The overall demand of the industry is huge. In addition, oxalic acid exports continued to improve, with a net oxalic acid export of 8% in 2018. 90,000 tons, a sharp increase from 50,000 to 60,000 tons before, and the net export of oxalic acid from January to February 2019. 70,000 tons, + 33% over the same period last year, and overseas demand continues to be strong. On the supply side, Fengyuan shares, Tongliao Gold Coal, Longxiang Industry occupy a larger market share, the competition pattern is better. Fengyuan currently has an industrial grade oxalic acid production capacity of 8. 50,000 tons, and 100000 tons of oxalic acid project is expected to be launched in the follow-up.

Electronic grade oxalic acid has a wide space. (1) with the large-scale application of 5G, the base station filter material has been upgraded from original metal to electronic ceramics, which brings huge demand for electronic ceramics. Electronic grade oxalic acid is the core raw material in the preparation of electronic ceramic capacitors. The demand is expected to break out. (2) the company provides Panasonic with customized high purity electronic oxalic acid for multilayer supercapacitors, which mainly includes new energy vehicles and other fields downstream. The application field is huge, and the demand for oxalic acid is estimated to be 20,000 tons / year. (3) Lithium difluoroxalate borate is developing towards high voltage, high capacity and high rate at present, and many new lithium salts are expected to be further developed, among which lithium difluoroxalate borate (LiODFB) is the most popular. As the main supplier of electronic grade oxalate and oxalate in China, the company currently has a production capacity of 1. 50,000 tons, and production is expected to be expanded in the future. The company cooperates with customers in research and development to benefit from the large space of electronic grade oxalic acid.

The cathode material of lithium battery continues to produce power. The company actively develops lithium battery cathode business, and has an international R & D team. Under the leadership of Dr. Kim Youcheng, former Chief Technology Officer of GSEM, high nickel ternary NCM811 pilot-scale products have been tested by Korea's well-known lithium battery cathode material testing center, and all the technical indicators have reached the international leading level. The company is implementing the construction of annual output of 1. Of the 50, 000-ton cathode material project, the lithium iron phosphate production line with an annual output of 3000 tons has a normal production capacity, while the production line with an annual output of 2000 tons in the first phase of the ternary material project is in the trial production stage. at the same time, the construction of lithium iron phosphate phase II, ternary phase II and NCM811 production lines are being promoted rapidly. At present, the products of cathode materials have been certified by more than ten domestic first-line battery manufacturers, and have established good cooperative relations with Penghui Energy, Bic, Youyou Power, Jiatuo New Energy, Voltaitong and other domestic well-known battery enterprises. The company is confident to obtain the certification of other domestic first-class battery manufacturers such as BYD, LG Chemistry, CATL, Yiwei Lithium Energy, Funeng Technology and so on as soon as possible. With the long-term planning of 50,000 tons of cathode materials for lithium batteries, the company will gradually increase investment in research and development to ensure the steady improvement of product quality, and enhance the competitiveness of the industry through deep cooperation with first-class lithium battery manufacturers.

Give a "buy" investment rating. The net profit for 19-21 is expected to be 0. 78 、 1 . 38 and 2. 1.3 billion yuan, EPS is 0. 81 、 1 . 43 and 2. 20 yuan, corresponding to PE 29X, 17X and 11x respectively, covered for the first time, given a "buy" rating.

Risk hint: the risk of product price fluctuation and the risk that product expansion is lower than expected.