Recent developments in the company Recently, we visited Oak's Liaoyang production base and exchanged views with the chairman and other executives about the company's situation. Commenting on DMC is probably an important highlight of Oak's 14th Five-Year Plan. The EO legal system DMC/EC, which was first implemented by the company, gradually entered into official production and operation in 4Q20. We expect to achieve a total production and sales volume of about 5,200 tons throughout the year. Due to the long verification cycle for electrolyte-grade products, we expect the company will gradually increase its share through efforts. Potential customers include companies such as Huayi and Xinzhoubang. Considering the broad market space of DMC and its application in many high-end fields such as lithium batteries and electronic chemicals, we believe that the current 20,000 ton installation is only the beginning of Oak's DMC layout. 145 Oak will draw on existing experience and rapidly expand to achieve a multi-site layout across the country. Furthermore, it should be noted that Suzhou Huayi, which currently holds 35% of Oke's shares, is a leading company in lithium battery additive materials. We believe that in the future, Huayi will use Oke to achieve scale and rapidly increase profits. With the acquisition of shares in Oak Pharmaceutical, the business has entered a rapid development channel. The company previously announced that it plans to acquire 67% of Oke Pharmaceutical's shares for 173 million yuan, corresponding to about 16 times PE in 2019. Currently, Oke Pharmaceutical's main products are ethoxylated pharmaceutical excipients with an annual output of 10,000 tons; in addition, the company has already built and tested a 8,000 tons/year granulation (polyethylene glycol series) workshop that meets EU GMP requirements. We believe that after the acquisition is completed, competition issues between pharmaceutical companies and listed companies will be eliminated, and the development stage will be accelerated. In addition to existing products, we anticipate that the company may expand to higher value-added APIs and injectable drug supplements, and may further deploy high-end PEG modifiers in the future. Although the polyethylene glycol pharmaceutical auxiliary market is currently limited, it has great potential for development and strong profitability. We are optimistic that Oak's expansion in the pharmaceutical field will continue to strengthen the development of its main EOD business. Recently, the company announced that it plans to invest 450 million yuan to build a 200,000 ton ethylene oxide derivative project in Yangpu, Hainan. We believe that the project has two major advantages. One is that EO is rich in raw materials. EO mainly comes from Hainan refining and 1 million tons/year of ethylene and ethylene oxide as a by-product of refining and expansion projects; second, it is close to the Southeast Asian market, which is conducive to speeding up overseas layout. The company expects to achieve cumulative revenue of about 5 billion yuan in five years after operation of the project. The valuation proposal does not consider merging Suzhou Huayi. We maintain the company's 2020/2021 profit forecast of 433/531 million yuan. The current stock price corresponds to 13/11 times the 2020/2021 price-earnings ratio. We are optimistic about the continuous improvement in the profits of the company's main water reducing agent units, and the growth potential brought by DMC and pharmaceutical auxiliary businesses to maintain the “outperform industry” rating and target price of 11.7 yuan, corresponding to the 18/15+2020/2021 market rate, with 38% room for growth. Risks The macroeconomic downturn has a negative impact on the company's polyether demand; uncertainty about the company's medium- to long-term growth; and potential business risks such as environmental protection and safety.