In the first three quarters, Baiao Chemical achieved operating income of 602 million yuan, up 49.33% from the same period last year; operating profit was 268 million yuan, up 107.18% from the same period last year; and net profit belonging to shareholders of listed companies was 234 million yuan, up 115.66% from the same period last year. According to the total share capital of 187 million shares, the earnings per share is 1.25 yuan, and the operating cash flow per share is 0.80 yuan. The sharp year-on-year increase in the company's performance in the first three quarters was mainly due to the smooth release of production capacity of fund-raising projects and the sharp increase in the prices of BIT and F-nitrile products compared with the same period last year; accordingly, the comprehensive gross profit margin in the first three quarters increased by 13.4PCT to 59.4% compared with the same period last year. The expense rate during the company period was unchanged at 13.7% compared with the same period last year. In terms of products, the revenue of industrial fungicides was 582 million yuan, an increase of 63% over the same period last year, with sales of 21991 tons, and an increase of 32% over the same period last year. F-nitrile intermediates achieved revenue of 74 million yuan, an increase of 83% over the same period last year, and sales of 1085 tons, down about 27% from a year earlier (mainly due to a decline in external sales).

From a quarterly point of view, the operating income in the third quarter was 252 million yuan, an increase of 66.90% over the same period last year; the net profit attributed to shareholders of listed companies was 122 million yuan, an increase of 167.31% over the same period last year; and EPS0.65 yuan in a single quarter. Q3 revenue and profits increased significantly compared with the previous month: (1) in terms of industrial fungicides, the production capacity of raised investment CIT/MIT was further released, leading to a 6% increase in sales to 8502.76 tons; at the same time, except for DCOIT products, the prices of other industrial fungicides increased to varying degrees, of which the average price of BIT products increased by 18% to 165.48 yuan / kg. (2) with the release of the second phase of 7000 tons of production capacity (put into production in July 2019), the sales volume increased by 108% to 505.54 tons from the previous month, and the product price remained strong, and the quarterly average price further increased by 8% to 87.32 yuan / kg.

The supply of F nitrile is limited, the price is strong, and the second phase capacity release contributes to the important performance increment.

The company has a production capacity of 10,000 tons of FNitrile (3000 tons of Phase 1 was put into production in September 2017 and 7000 tons of Phase 2 was put into production in July 2019). Affected by environmental inspection and the extension of trial production time of production expansion projects, the company's production and sales volume declined in the first half of the year compared with the same period last year, while with the second phase of project production on the right track, the company's production and sales volume in the third quarter has increased significantly, and it is expected that the follow-up will continue to contribute to an important increase in performance.

Fund-raising project put into production to alleviate the bottleneck of industrial fungicide production capacity

With 12000 tons of CIT/MIT or 2000 tons of MIT, 2500 tons of OIT, 2500 tons of BIT series products officially put into production in April 2019, effectively alleviate the company's industrial fungicide capacity shortage, further enhance the scale effect, reduce the unit production cost. The company also has the ability to mass-produce BIT series products for the first time, making up for the shortcomings in the isothiazolinone industrial fungicide series, enriching the product structure and becoming an important driver for the improvement of business performance in 2019 and even the whole year. We believe that with the release of BIT upstream intermediate o-chlorobenzonitrile capacity, BIT capacity load is expected to further increase.

Profit forecast and investment advice: with the release of production capacity of the company's fundraising projects CIT/MIT, o-chlorobenzonitrile and BIT, the company's performance is expected to continue to improve. We expect the company's 2019-2021 net profit to be 399 million, 453,385 million yuan, and the current price will be 17.6 times PE in 2019, maintaining a "buy" rating.

Risk hint: the progress of the fund-raising project is lower than expected, and the risk of product price decline