The company expects a net profit of 40,000 million yuan to 4.1 billion yuan in 2020, a year-on-year increase of + 13.62% and 16.46%. The company actively layout business transformation, it is expected that water reducer monomer business will continue to develop steadily, DMC, pharmaceutical polyethylene glycol, and other new business is expected to open long-term development space. As the higher-than-expected rise in oil prices since the 2020Q4 has pushed up the company's costs, we have lowered the company's homing net profit forecast for 2020-2022 to 4.1 shock 52.0 million yuan, corresponding to the EPS forecast of 0.60 pound 0.76 shock 0.90 yuan, and the current stock price corresponding to 2020-2022 PE is respectively times that of 20-16-13. Still optimistic about the company's long-term growth and transformation brought about by the valuation increase, maintain the "buy" rating.

It is estimated that the net profit of homing in 2020 is 400.41 billion yuan, which is 16.46% higher than that of the same period last year. The company issued a performance forecast for 2020, which is expected to achieve a net profit of 4.0-410 million yuan in 2020, an increase of 13.62% and 16.46% in 2019 after retroactive adjustment. The company expects to achieve a net profit of 370 million yuan to 38 million yuan after deducting non-recurring profits and losses, an increase of 16.18% to 19.29% over the same period last year; basic earnings per share of 0.59% to 0.60 yuan per share, an increase of 13.46% to 15.38% over the same period in 2019 (after adjustment), and the current price corresponds to 20.2% to 20.5 times PE.

Domestic ethylene oxide deep processing leader, water reducer monomer business is growing steadily. The company is a leading enterprise in the domestic ethylene oxide (EO) finishing field, with 1.3 million tons / year of ethylene oxide intensive processing capacity, and has the largest single plant scale of 50,000 cubic meters of low-temperature ethylene storage tank and 200000 tons of ethylene production capacity of EO. The current main product polyether monomer domestic market share of about 40%, always maintain a leading position in the industry.

Our estimates show that due to the impact of the Q1 domestic epidemic in 2020 and the drag on prices by low oil prices throughout the year, the company's revenue from water reducer monomer business decreased by about 8.5% compared with the same period last year, but the company's scale effect and ethylene production capacity brought cost advantages. The company announced that the gross profit margin of superplasticizer monomer sales in 2020 was about 16%, an increase of nearly 3% over the same period last year, and a gross profit of about 744 million yuan, an increase of about 8% over the same period last year.

It is expected that the lithium battery electrolyte-related business will be the main driver of the company's growth in the future. On October 27, 2020, the company announced that the "annual production of 20,000 tons of new energy lithium battery electrolyte solvent project" reached the conditions of continuous and stable production. 2020Q4 EC/DMC production and sales rate is about 95%, sales volume is about 3500 tons, gross profit is about 10 million yuan, gross profit is about 38%. We estimate that the operating rate of the company's production capacity is about 110%, and the unit price is about 7520 yuan / ton. It is expected that the sales of new energy vehicles in China and the world will reach 4-5 times that of 2020 in 2025, driving the rapid release of related products. EC/DMC is the current mainstream lithium battery electrolyte solvent, and the company's EO EC/DMC process has a comprehensive price difference of more than 2000 yuan per ton compared with the current mainstream PO technology route in the market, which has a significant advantage. Suzhou Huayi, which is a shareholder of the company, is mainly engaged in the production of electrolyte additives such as VC, FEC, PS, VEC and so on. At present, it has stable and high-quality downstream customers and can produce good coordination with the company. It is expected that the electrolyte-related business will become the main driver of the company's performance growth in the future.

Positive transformation, EO downstream high value-added areas worthy of attention. Ethylene oxide is the second largest downstream product of ethylene, with more than 5000 EO derivatives worldwide. In addition to superplasticizer monomers, the company is actively transforming to the downstream high value-added field of EO. It was announced on November 18 that it intends to raise 173 million yuan to acquire 67% of Oke Pharmaceutical, enter the field of polyethylene glycol for pharmaceutical use, and complete the acquisition on December 21. In addition, the company currently has a production capacity of 50,000 tons of Nonionic surfactants. The company is expected to benefit from the EO downstream high value-added business and long-term sustained growth.

Risk factors: a sharp decline in infrastructure investment; fluctuations in the prices of products and raw materials; new business development is not as expected.

Investment suggestion: the company actively layout business transformation, it is expected that water reducer monomer business will continue to develop steadily, DMC, pharmaceutical polyethylene glycol, surfactant and other new business is expected to open long-term development space. As the higher-than-expected rise in oil prices since the 2020Q4 has pushed up the company's costs, we have lowered our 2020-2022 homing net profit forecast to $4.1 million (the original forecast is $43,000,000), corresponding to the EPS forecast of $0.60, 0.76, respectively (the original forecast is 0.64, 0.95, 1.13). The current stock price corresponds to the 2020-2022 PE, which is twice as much as 20-16-13. Still optimistic about the company's long-term growth and business transformation brought about by the valuation improvement, maintain the "buy" rating.