Incident The company released its 2019 semi-annual report The company released its 2019 semi-annual report on August 29, 2019. During the reporting period, the company achieved revenue of 2,090 billion yuan, a year-on-year decrease of 14.20%; net profit to mother was 53 million yuan, a year-on-year decrease of 76.35%. Among them, Q2 achieved net profit of 0.27 million yuan in a single quarter, a year-on-year decrease of 59.42% and a month-on-month increase of 5.68%. The company publicly listed and transferred 18.75% of the shares of the participating company Manas Aoyang Technology through the Xinjiang Property Exchange. The stock transfer price for the underlying asset was RMB 28.7 million. If the transaction is completed, the company will no longer hold any shares in AoYang Technology. Brief review The price of raw materials was strong and the price of caustic soda declined. As a result, the company's products such as PVC resin and soda did not change much during the reporting period. However, the company's profit was compressed due to the double squeeze on the raw material side and the product side. On the raw materials side, supply-side reforms of upstream coal and coke were more intense than in the chlor-alkali industry, and the average price of coal and coke purchased by the company from Xinjiang rose sharply; on the product side, due to the decline in the caustic soda industry, the average Q1 and Q2 prices of the company's caustic soda products were 2,600 and 1,845 yuan/ton respectively, a sharp drop of 556 and 1,023 yuan/ton over the previous year, which also reduced the company's gross profit margin. According to the company's operating data announcement, factors such as the rise in raw material prices during the reporting period directly affected the company's profit decline of 107 million yuan; the fall in the price of sodium chloride directly affected the decline in profit by 57 million yuan. Dispose of non-core assets once again to get rid of burdens. Recently, with the support of the group company, the company has implemented “steady development of existing dominant businesses, elimination of disadvantaged industries, and further promotion of industrial restructuring”, and the asset restructuring process has accelerated markedly. In terms of asset divestment, details include: 1) In December '18, the company listed and transferred 62.97% of the shares in the subsidiary Tianye Tomato, partially divesting its loss-making ketchup business; currently, Tianye Tomato has entered bankruptcy and liquidation proceedings. 2) In March 19, the company pre-listed and transferred 100% of Tianye Oasis's shares, 18.75% of Manas Aoyang Technology's shares, and 100% of Jinghe Xinshi's shares; 3) It officially listed and transferred Jinghe Xinshi's shares to dispose of its road transport and auto parts business; it has now completed the share transfer. Manas Aoyang Technology, which was listed and transferred this time, is a chemical fiber and thermal power enterprise jointly established by Jiangsu Aoyang as the main sponsor and in collaboration with Xinjiang Tianye and others. According to the official website, it currently has a production capacity of 90,000 tons of cotton pulp and 130,000 tons of viscose staple fiber. Currently, the viscose fiber market is sluggish, industry companies are generally losing money, and the supply and demand pattern is putting a lot of pressure on non-leading companies. The company's choice to divest this asset is expected not only to directly benefit the company's performance, but also likely to further optimize the company's future asset structure. Invest in the Group's high-quality chlor-alkali assets, implement national reforms, and expand the main business. In June, the company issued a major asset restructuring notice. It plans to purchase 100% of Tianneng Chemical's shares from group companies and others by issuing shares, convertible bonds, and cash payments. The transaction consideration has not yet been determined. Tianneng Chemical's main business is chlor-alkali, with a production capacity of 450,000 tons of PVC and 330,000 tons of caustic soda. Its asset injection is not only the implementation of the Group's national reform, but is also in line with the company's strategy. It is expected to further enhance the scale effect of the company's main chlor-alkali business and enhance the company's competitiveness. The 600,000 ton ethylene glycol project continues to advance, and the installation phase entered the installation phase. In 2017, the company and the group company jointly funded projects to undertake projects such as 1 million tons/year synthetic gas to ethylene glycol. The first phase invested 7.997 billion yuan to build a 600,000-ton ethylene glycol plant. According to the semi-annual report, the project progressed smoothly during the reporting period. At present, equipment orders have been completed, civil construction is nearing completion, and installation work is in full swing. Recently, domestic production capacity in the ethylene glycol industry has expanded rapidly, significantly reducing the industry's profit margins. However, the company has the advantage of technical experience from the Group and the cost advantage of local coal raw materials, and is still expected to contribute a reasonable amount of profit to the company in the medium to long term. The chlor-alkali market is stabilizing, and leading companies are expected to obtain steady profit margins. The current period of rapid growth in production capacity in the PVC/caustic soda industry has passed. Currently, the medium- and large-scale production capacity under construction/proposed production capacity is only a few projects such as Jintai Chlor-Alkali and Wanhua Chemical. The impact on supply is limited; however, the year-on-year growth rate of new downstream real estate construction area remains around 10%, and there is still support for demand for chlor-alkali products in the short to medium term. Overall, supply and demand are well matched. As the price of caustic soda falls from a high point, the industry will stabilize in the future. The risk indicates that the major asset restructuring has fallen short of expectations, and the progress of ethylene glycol production falls short of expectations. We expect the company's net profit to be 1.47, 243, and 374 million in 2019, 20, and 21, respectively, corresponding to PE32X, 19X, and 13X, maintaining the “increase in holdings” rating.