Leather Chemical, a leading enterprise in the vitamin segment, began and gradually grew into a leader in the vitamin industry. The company is mainly engaged in fine chemicals business such as feed additives, food additives, and leather chemicals. After nearly 30 years of development, the company has become the world's largest supplier of vitamin K3 (production capacity 3000 tons), the world's top three vitamin B1 suppliers (production capacity 3,200 tons), the world's top four vitamin B3 suppliers (production capacity 13,000 tons), the world's sixth largest supplier of calcium pantothenate (production capacity 5,000 tons), and the largest domestic and third largest supplier of chrome tanning agents in the world (production capacity 45,000 tons). Expectations for the resumption of VB1 production are compounded by the bottom rise in prices of major vitamin varieties VB1: In 2019, global VB1 production was about 9100 tons, and demand was about 7,900 tons. In 2019, the price of VB1 gradually bottomed out to about 150 yuan/kg. Affected by the domestic epidemic in early 2020, the overseas price of VB1 rose rapidly to 300 yuan/kg. One of the major manufacturers in the industry is located in Hubei. Supply continues to be tight, and price expectations still have room to rise. VB3: Global production of VB3 in 2019 was about 73,700 tons, and demand was about 66,000 tons. From H2 in 2018 to H1 in 2019, some companies lost money due to rising raw materials. Currently, the market price of VB3 is 48-58 yuan/kg, up about 8 yuan/kg from a year ago. VK3: In 2019, the global demand for VK3 was about 6200 tons, and the output was about 7120 tons. Brother Technology is the industry leader, with a share of about 35%. The 2019 VK3 price is at the bottom of history. The VK3 market price gradually rebounded after the Spring Festival in 2020. Currently, the market price is around 105-125 yuan/kg, up about 45 yuan/kg from a year ago. VB5: Industry supply is concentrated. In 2019, the global production of calcium pantothenate was about 24,500 tons, and the demand was about 21,000 tons. In 2019, the shortage of raw materials in the industry caused insufficient supply, and the product price rose from 170 yuan/kg at the beginning of the year to 380 yuan/kg. In 2020, the price of calcium pantothenate continued to be high, with prices around 350-380 yuan/kg. The resumption of vitamin B1 production compounded the bottom rise in prices of major vitamin varieties. Brother Vitamins (VB1 production) is an important subsidiary of the company. In 2016-2018, it accounted for nearly 40% of revenue and more than 80% of net profit. Brother Vitamins discontinued production in 2019, leading to a sharp decline in the company's 2019 performance. At present, Brother Vitamins has approved the resumption of production, and the company's performance is expected to improve drastically. Affected by the epidemic at the beginning of the year, the prices of the company's main varieties, VB1/VK3/VB3, rose from the bottom, and the price of VB5 continued to remain high. Currently, the downstream inventory of VB1/VK3 is low, and the price is expected to continue the upward trend. The price of the company's products rose year on year, which is expected to contribute to the increase in performance when sales volume remains stable. The acquisition of LANXESS South Africa promoted the collaborative development of the company's business. LANXESS South Africa's main products include sodium dichromate, chromic acid, chrome tanning agents, etc. The company's operating income and net profit in 2018 were 5300 million yuan and 486.79 million yuan respectively. The transaction has now been completed, and it is confirmed that the equity settlement date is January 10, 2020. The performance of subsidiaries was consolidated, and the company's EPS was strengthened. The expansion of the hydroxygenol derivatives and contrast agent business at the Jiangxi base opens up space for the company to grow. The company invested about 5 billion yuan in Jishan Industrial Park in Jiujiang City, Jiangxi Province, and laid out the fine chemical business. These include (1) a project with an annual production of 20,000 tons of phenylene diphenol and 31,000 tons of hydroxyphenol derivatives, focusing on the production of fragrance products mainly vanillin and ethyl vanillin (sales revenue during the production period is about 714 million yuan, average annual net profit for the ten-year period is about 91.034 million yuan); (2) contrast agent raw materials and intermediates projects (production sales revenue is about 970 million yuan, net profit is about 129 million yuan). As the Jiangxi project is gradually put into operation in 2020, it is expected to open up room for the company to grow. Profit forecast: We expect the company to achieve operating income of 1243.57/2405.39/3230.02 million yuan in 2019-2021, respectively; net profit of 44.34/327.91/471.44 million yuan, corresponding to PE, 127/17/12 times, respectively. First coverage, giving a “buy” rating. Risk warning: The resumption of production of VB1 fell short of expectations; construction, production and sales of the Jiangxi Phase II project fell short of expectations; and the price of vitamin products fell short of expectations.