The company released its 2019 annual report, and the performance was in line with expectations. In 2019, operating income was 5.369 billion yuan, down 4.19% year on year, and net profit was 1,227 billion yuan, up 11.53% year on year, in line with expectations. Among them, the 19Q4 quarter achieved operating income of 1,306 billion yuan (yoy -7.63%, QoQ -1.04%), and net profit of 285 million yuan (yoy +16.20%, QoQ -2.25%). The year-on-year increase in net profit in 2019 was mainly due to the simultaneous increase in sales volume and gross margin of fatty alcohols (acids) and sulfonated pharmaceutical products. The company's overall gross margin increased 4.13 percentage points year-on-year to 34.76% in 2019. The high-end of sulfonated pharmaceutical products has led to a sharp rise in volume, price, and gross margin. The addition of 30,000 tons of sulfonation units and 4,000 tons of BA production capacity will become the company's new profit growth points in the future. In 2019, with the increase in BA production and sales of high-value-added products and the launch of TA devices, the share of high-value-added products in the sulfonated pharmaceutical series increased dramatically (BA achieved stable operation of industrialization, sales volume of 1,500 tons). The average sales price surged 46.22% year on year, driving a sharp increase in sales revenue of 56.98% year on year to 823 million yuan, and gross margin increased 0.67 percentage points to 60.74% year on year. The 4,000 tonnes of BA and 30,000 tons/year sulphur trioxide continuous sulfonation production plant, which is currently being expanded, are expected to be put into operation by the end of 2020, becoming a new profit growth point for the next two years. The restructuring of fatty alkyd products combined with the decline in raw material prices led to a sharp increase in gross margin. Steam continued to grow steadily, investing in 300,000 tons of dichloroethane and VCM, and 300,000 tons of ethylene PVC projects to balance chlor-alkali development. The technical improvement of the multi-variety fatty alcohol (acid) project with an annual output of 200,000 tons was completed, and the added value of the product increased. In 2019, the company's fatty alcohol (acid) production and sales volume increased 11.18% and 6.19%, respectively, and the average price fell 20.56% year on year, leading to a 15.65% year-on-year decline in sales revenue. However, due to the 26.01% year-on-year decline in the price of raw palm kernel oil and isolated palm kernel oil, the gross margin of fatty alcohol (acid) increased sharply by 7.98 percentage points. In 2019, the company's steam production and sales volume increased by 2.45% and 1.95%, respectively, and gross margin continued to rise 0.56 percentage points to 31.26% year on year. In the future, with the rapid development of the neighboring Haiyan Hangzhou Bay Bridge New Area, the continuous increase in the number of new users will bring continuous and steady growth to the company's steam demand. The newly invested 300,000 tons of dichloroethane and VCM and 300,000 tons of ethylene PVC projects are expected to be put into operation by the end of 2020 to digest the by-product chlorine, balance the development of chlor-alkali, and enhance the advantages of integrated circular economy. Cooperate with industry giants to lay out the hydrogen energy industry chain. In 2019, the company cooperated with American Air Products to introduce advanced liquid hydrogen production technology using the company's by-product hydrogen and low-cost industrial liquid nitrogen in the park to achieve low-cost large-scale hydrogen preparation and transportation. The United Nations Hydrogen Rich Energy and Shanghai Remodeling established Jiangsu Jiahua Hydrogen Energy Technology Co., Ltd., which is committed to the investment, construction and operation of hydrogen refueling stations in the Yangtze River Delta region. Through station linkage, hydrogen refueling stations can supply hydrogen energy to logistics vehicles in a timely manner. The “Strategic Cooperation Framework” and the “Hydrogen Liquefaction Plant Cooperation Framework Agreement” were signed with Zhejiang Energy Group. The two sides will cooperate to carry out hydrogen liquefaction projects, jointly establish the first commercial liquid hydrogen plant in China, and build hydrogen purification and liquefaction plants through project technical reform of the chlor-alkali plant in the Jiahua Energy Plant. Accelerate the improvement of the hydrogen energy industry chain layout. Investment rating and profit forecast: The expansion of the company's sulfonated pharmaceutical series products and the gradual production of VCM and PVC projects will bring about continuous growth in the company's performance and open up growth space for the hydrogen energy business. However, due to the sharp decline in volume and price of the chlor-alkali business and the decline in sales of some products, we lowered the company's net profit forecast for the year 2020-2021 to 11.66 billion yuan and 1,515 billion yuan (originally 1,516 billion yuan and 1,856 billion yuan), adding the net profit forecast for 2022 to 1,818 billion yuan, corresponding to the current stock price PE, 11 and 9, respectively And 7 times, downgraded to an increase in holdings rating. Risk warning: 1. Prices of caustic soda and fatty alkyd products have plummeted; 2. Prices of raw materials such as palm kernel oil have risen sharply; 3. Steam demand has declined due to the slow resumption of work by park enterprises.