Sanjiang Chemical released annual revenue of 8.9 billion yuan (up 33.9% year on year) and net profit of 690 million yuan (up 25% from the same period last year). We raise our EPS forecast as follows: from 0.66 yuan to 0.76 yuan in 2018 (an increase of 13.4 percent over the same period last year), and from 0.69 yuan to 0.78 yuan in 2019 (an increase of 2.6 percent over the same period last year). At the same time, we forecast that EPS will be 0.85 yuan in 2020 (an increase of 9 percent over the same period last year). We maintain our target price of HK $5.35. There is 69% upside space between the current price and the target price, so keep buying.

The performance is good. In 2017, the company's ethylene oxide sales revenue was 2.9 billion yuan, an increase of 6.3% over the same period last year, accounting for about 32% of the total revenue. Ethylene glycol sales revenue of 2.2 billion yuan, an increase of 93.6% over the same period last year, accounting for 25% of the total revenue. Since May 2017, ethylene glycol prices have risen and remained high throughout the year, and the company has seized the opportunity to increase ethylene glycol sales by 44.5% to 356373 tons compared with the same period last year. The company's 2017 gross profit margin decreased slightly to 12.2% from 13.6% in 2016, mainly due to the decrease in ethylene oxide gross margin from 26.7% in 2016 to 22.3% in 2017, and the gross profit margin of polypropylene from-5.9% in 2016 to-9.4% in 2017. The company's full-year net debt ratio decreased significantly, from 42.9% in 2016 to 27.1% in 2017, and financial expenses decreased by about 39% compared with the same period last year. The company announced a dividend of 0.125 yuan per share in 2017, corresponding to a dividend payment rate of 30% and a dividend yield of 3.4%.

The price of the product is firm and the cost side is down. The price of methanol, the company's main raw material, rose all the way in the second half of 2017 and began to fall at the beginning of 2018, with a drop of 22% so far this year. Then the price of the company's main products remains high, and the price of ethylene oxide has risen by 23.3% since September 2017, and we estimate that the current gross profit per ton is about 3600 yuan. Although the price of ethylene glycol has fallen by nearly 11% since the end of January, the gross profit per ton can still be maintained at 1500 yuan. And after the Spring Festival, the company's MTO production line has resumed normal production.

Keep buying. We raise our EPS forecast as follows: from 0.66 yuan to 0.76 yuan in 2018 (an increase of 13.4 percent over the same period last year), and from 0.69 yuan to 0.78 yuan in 2019 (an increase of 2.6 percent over the same period last year). At the same time, we forecast that EPS will be 0.85 yuan in 2020 (an increase of 9 percent over the same period last year). We maintain our target price of HK $5.35, corresponding to 6 times 18-year PE and 1.1 times 18-year PB. There is 69% upside space between the current price and the target price, so keep buying.