A new round of production capacity cycle has begun, and the new star of pipes in South China is waiting to take off. Xiongsu Technology is one of the largest comprehensive suppliers of plastic pipelines with a production capacity of more than 200,000 tons in China for a few years, and is based in South China facing the whole country. In 2019, the company had an annual production capacity of 360,000 tons of various types of plastic pipes, with a capacity utilization rate of 65%. In 20-21, it will also deploy 100,000 tons of high-performance plastic pipe production capacity in Hainan and Yunnan, and the company's production capacity will enter a new round of expansion cycle. At the same time, the company is actively expanding dealer channels and increasing the share of PE pipe business such as municipal infrastructure, which is expected to optimize and upgrade the product structure. The company's historical financial indicators are excellent, and the scale effect and structural optimization are expected to drive the increase in net interest rate. We expect the company's EPS for 20-22 to be 0.92/1.18/1.48 yuan, covering the “buy” rating for the first time. With excellent financial indicators and sufficient leverage, the company's ROE stabilized at around 15% in 15-19. It is basically second in the industry, second only to China Liansu, and significantly higher than other comparable companies. The company's period expense ratio was lower than that of comparable companies, and its operating capacity was relatively strong. As of the end of March 2020, the company's balance ratio was only 16%, and the interest-bearing debt balance was only 3 million yuan in short-term loans. After the company went public in 2017, its brand and capital strength were greatly enhanced. The successive commissioning of bases in Jiangxi and Henan provided impetus for the company's rapid development. Revenue increased by an average of 14.7% in 18-19, significantly faster than the average revenue growth rate of 3.2% in 13-16. The completion of production at the Jiangxi and Henan bases and the commissioning of the Hainan and Yunnan bases in 20-22 will push the company into a new growth cycle. Demand for municipal infrastructure pipes is high, and the share of direct sales business increased by about 85% of the company's distribution revenue in 2019. Downstream customers are mainly civilian customers. The supply products are mainly PVC pipes with low gross margin. The company's PVC products accounted for 72% of revenue in 2019, with a gross profit margin of 24%. We expect that as the proportion of fine decoration and collection increases, the company's share of direct sales is expected to rise. The company has been cooperating closely with Poly Real Estate since 2001. Since 2015, the company has maintained its position as the largest customer, and has now expanded to real estate developers such as Rongsheng and R&F. Furthermore, the commissioning of the company's high-performance pipe projects in Hainan and Yunnan will provide production capacity guarantees for the company's expansion of municipal administration and infrastructure business. The expansion of off-site production capacity is accelerating, and the market share is expected to increase steadily. The company now has four production bases in Guangdong, Guangxi, Jiangxi and Henan, with an output of 240,000 tons in 2019, accounting for 1.5% of the industry's total output and 65% capacity utilization rate. The company plans to quickly increase investment in the Yunnan base. After the Hainan/Yunnan base is put into operation in 20/21, the company's plastic pipe production capacity will reach 460,000 tons. According to research on companies, a new base can generally be profitable 2-3 years after it is put into operation, which is better than comparable companies. The company added more than 100 dealers in Jiangxi and Henan regions in '19, and the Jiangxi base made a profit of 9.07 million in '19. The Henan base is expected to turn a loss into a profit in '20, laying the foundation for the subsequent operation of the new base. The net profit CAGR for 20-22 is estimated to be +24%, covering the “buy” rating for the first time. We expect the company to return net profit of 2.8/3.6/450 million yuan in 20-22, with a CAGR of +24%. As of June 17, 2020, the average of comparable listed companies corresponding to the 20-year Wind consensus forecast is 19.8 xPE, which is higher than the company's 14.1xPE. We believe that: 1) the expansion of the company's production capacity from other locations has been determined, Jiangxi and Henan have successively made profits, and Hainan and Yunnan production capacity have been relayed; 2) the company's financial statements are excellent, scale effects and ROE increases are promoted through appropriate leverage, and performance is highly flexible. We approved the company's 20-year 18-20xPE, with a target price of 16.56-18.40 yuan, covering the “buy” rating for the first time. Risk warning: Raw material prices have risen sharply, new production capacity cannot be digested in time, and industry competition has intensified.