On May 18, the IPO of Ningde Times, one of the company's key customers in the chemical business, was approved and will be listed on the GEM market, with a cumulative capital raised between 5 to 6 billion dollars. As a unicorn in the NEV industry, Ningde Era has now become a leader in the global power battery field, ranking first in the world in terms of shipments in 2017. Huarong Chemical, a subsidiary of the company, is the main supplier of electrolytes in Ningde Shidai. This successful listing and fund-raising will significantly promote Ningde Shidai's future production expansion plans, promote the continued expansion of the business scale, strengthen the contract supply scale between the two, drive the company's electrolyte sales, and benefit the company's future chemical business. Brief review 1. The Ningde Times IPO has been approved. It is worth looking forward to the future expansion of production and deepening cooperation between the two sides. It is worth looking forward to Ningde Era, which is currently the global leader in the power battery field. Customers include mainstream domestic and foreign automakers such as Yutong Group and SAIC Motor Group; first-class foreign car companies such as BMW, Volkswagen, Daimler Benz, etc.; and emerging automakers such as NIO Auto. The company enjoyed the new policy proposed by the Securities Regulatory Commission to open an IPO “immediate report and review” green channel for unicorn companies in the four major industries of biotechnology, cloud computing, artificial intelligence, and high-end manufacturing. It only took 24 days to complete the meeting. The speed is currently the fastest in China. According to the prospectus, the company's power battery production capacity increased rapidly from 2.6 GWh in 2015 to 17.09 GWh in 2017, and in 2015-17, the sales volume of power battery systems ranked in the top three in the world for three consecutive years, with 2.19 GWh, 6.80 GWh, and 11.84 GWh respectively. The 2017 sales ranking surpassed Panasonic, BYD, and LG to number one in the world. In the Ningde era, the scale of production and sales expanded rapidly, and the procurement of raw materials continued to increase. In 2015-17, the company's procurement amount of major raw materials (cathode materials, graphite, diaphragms, electrolytes, and cases/top covers) increased from 1.44 billion yuan to 6.14 billion yuan. Among them, the purchase amount of electrolytes increased from 150 million yuan to 644 million yuan, while Huarong Chemical, a subsidiary of Jiangsu Cathay Pacific Chemical, is one of the main suppliers of electrolytes in the Ningde era. Since the two sides began cooperation in 2014, 2017H1 Huarong Chemical has ranked fifth among suppliers in the Ningde Era, with a total purchase amount of 220 million yuan, accounting for about one-third of Huarong Chemical's total revenue. The successful approval of the IPO will effectively reinforce the pace of production expansion in the Ningde era. One of the fund-raising projects, the Huxi lithium-ion power battery production base project, will add 24 GWh of annual power battery production capacity after delivery. The company also plans to double power battery production to 50 GWh by 2020. After the company expands production, upstream procurement will inevitably increase, and upstream suppliers of the above core materials will directly benefit. According to the 50 GWh production capacity target and 11.6% of the average value of electrolyte purchases in 2015-17, the scale of electrolyte demand in the Ningde era is expected to expand to about 2 billion yuan. There is huge scope for deepening cooperation between the two sides. In the future, under the leadership of the Ningde era, supply-side demand is expected to continue to be strong, bringing a favorable growth environment to the company's chemical business. 2. Supply chain management advantages firmly guarantee high growth in export business. New chemical electrolyte production capacity can be expected. In 2017, the company achieved operating income of 34.489 billion yuan, an increase of 16.10% over the previous year; net profit of 774 million yuan, up 43.19% year on year; 2018 Q1 revenue of 7.583 billion yuan, up 5.75% year on year; net profit of 228 million yuan, up 48.06% year on year. In the foreign trade section, the company's import and export revenue increased steadily in 2017, and clothing and toy exports contributed mainly to the growth in clothing and toy exports. With the advantages of scientific and effective supply chain management that it has continuously built over the years, the company actively innovates business service models, enabling the main business to continue the good trend of steady growth. In 2017, the company and its holding subsidiaries Huasheng Industrial, Guohua Industrial, Hanbo Trading, Litian Industrial, Guosheng Industrial, Yida Industrial, and Guomao Industrial ranked 4th, 11th, 18th, 29th, 30th, 34th, and 42nd of the top 50 Chinese textile and garment exporters, respectively. The scale of the company's import and export trade increased steadily throughout the year, totaling 33.17 billion yuan, an increase of 16.06%, accounting for 96.17% of total revenue. Among them, export revenue of clothing and toys reached 31,218 billion yuan, an increase of 21.61%; revenue from clothing, toy imports and domestic trade was 1,952 billion yuan, a decrease of 30.0%. As Cathay Pacific Investment disposed of Landsea Group's shares and increased investment income by about 590 million yuan, the net profit of 2018Q1 companies increased significantly. In the chemical sector, the new energy and new materials industry continues to be supported by the national industrial policy. Ruitai New Energy Holdings Huarong Chemical, a subsidiary, was established to integrate the chemical new energy business, and grew steadily in 2017. Huarong Chemical is responsible for the company's chemical business. It mainly produces lithium-ion battery electrolytes and silane coupling agents. In 2017, the chemical business achieved revenue of 1,197 billion yuan, an increase of 9.53% (of which Huarong Chemical achieved revenue of 1,143 billion yuan, an increase of 7.16%). The increase in raw material prices drove product price increases, and gross margin increased 6.2 pct to 31.60% year on year. The company is optimistic about the prospects of new energy and is steadily advancing the construction of new chemical production capacity. The company plans to invest 40,000 tons/year in a lithium-ion battery electrolyte project in Poland. The estimated construction period is about 30 months. After the project is completed, the estimated annual revenue is 2.2 billion yuan and the annual profit after tax is 318 million yuan. The company used the construction of a lithium-ion battery electrolyte project in Poland as an opportunity to collaborate with relevant customers in terms of business and reduce transportation costs. At the same time, seize the development opportunities of new energy vehicles in Europe, connect with the Polish and EU markets as soon as possible, and enhance differentiated competitiveness. Currently, the project in Poland has obtained approval from relevant domestic departments, and land is being purchased. In addition, the company moved the Ningde lithium-ion power battery electrolyte project with an annual output of 40,000 tons (the construction cycle is expected to be 2 years) to the fine chemical park in the Long'an Project Area of Fuding City. Currently, it has obtained some land use rights, and the project approval is being processed. Investment advice: We continue to be optimistic about the development prospects of Jiangsu Cathay Pacific as a dual leader in supply chain management and electrolytes. The chemical division of the company is the core supplier of the LG, Sony, and Ningde era. The successful IPO of Ningde Era lays the foundation for future expansion of production, and is optimistic about the long-term trend of production capacity growth for downstream customers. We expect the company's net profit in 2018-2019 to be 1,091 billion yuan and 1,385 billion yuan respectively, EPS 0.69 and 0.88 yuan/share, corresponding PE to 11.4 and 9.0 times. As equity binding gradually deepens, the upper and lower interests are consistent. We expect the future performance growth rate to continue to increase, with firm optimism and maintaining the “buy” rating. Risk factors: The decline in macroeconomic growth may cause demand from downstream customers in the foreign trade supply chain business to shrink; as a result, the performance of the company's foreign trade sector falls short of expectations; and the progress in expanding production of electrolyte customers falls short of expectations.