Core view: The company is a leader in the organic pigment industry, and performance continues to grow. Lily has developed into a leading enterprise with overall competitiveness in the domestic organic pigments industry. The company's current organic pigment production capacity is 35,300 tons, including the parent company's production capacity of 20,000 tons, holding subsidiary Lily Clariant's 5,500 ton production capacity, wholly-owned subsidiary Xuancheng Pigments, 4,800 tons of production capacity, and 5,000 tons of environmentally friendly organic pigments put into production this year. In addition, the company also has 3,000 tons of high-performance organic pigments under construction. If the project is completed and delivered, the company's organic pigment production capacity will reach 383,000 tons. According to the three-quarter report, the company achieved operating income of 1,356 billion yuan in the first three quarters of 2018, an increase of 24.78% over the previous year, and realized net profit of 151 million yuan, an increase of 74.70% over the previous year; in a single quarter, 2018Q3 achieved net profit of 63 million yuan, an increase of 124% over the previous year. Thanks to rising prices of leading products, the company's profit level has increased. After experiencing a decline in gross margin in 2015-2017, the company's gross margin rebounded significantly to 24.45% in the first three quarters of 2018. Organic pigments: widely used. Increased industry concentration The main downstream of organic pigments is: inks, coatings and plastics, which have many varieties and are widely used. According to data from Huicong Chemical Network, the current total sales volume of the global organic pigments market is about 320,000 tons, of which classic azo pigments account for 61%, phthalocyanine pigments account for 28%, and high-performance pigments account for 11%. After the steady development of China's organic pigments industry in recent years, the concentration of the industry has gradually increased. The total production capacity share of the top 15 enterprises in the industry increased from 68.2% in 2012 to 70.7% in 2016. The fund-raising project consolidates production capacity. Profit forecasts and investment suggestions for epitaxial expansion into the pearlescent pigment sector are based on the assumption that the organic pigments industry is developing steadily and that the company's new production capacity is gradually released. We expect the company's earnings per share in 2018-2020 to be 0.96 yuan, 1.15 yuan, and 1.28 yuan respectively, corresponding to the current price-earnings ratio of 14 times, 12 times, and 10 times. Comparing the valuation levels of listed companies in the pigments, dyes and coatings industry, the company's leading position in the organic pigments industry and the company's growth, covered for the first time, a “prudent increase” rating. Risk warning 1. Prices of organic pigment products have fallen, and raw material prices have fluctuated greatly; 2. Downstream demand continues to be sluggish; 3. The progress of projects under construction falls short of expectations; 4. Major safety and environmental incidents.