Main points of investment:

Company announcement: the company will revoke the risk warning on November 7, 2018, the stock abbreviation will be changed from "ST Asia" to "Asia shares", the stock code "603188" will remain unchanged, and the daily rise and fall limit of stock price will be changed from 5% to 10%. Prior to this, due to the environmental protection renovation of the Subei Chemical Industry Park, the main elements and branches of the chemical park in Duigou Port Town, Guannan County, where the company is located, all stopped production. This shutdown touches on the situation in which "production and business activities are seriously affected and are not expected to return to normal within three months" as stipulated in the Shanghai Stock Exchange Stock listing rules 13.3.1. The company's stock was issued with "other risk Alert" on August 14, 2018. At present, three enterprises, Jiangsu Huar Chemical Co., Ltd., Jiangsu Yabang Dye Co., Ltd. Lianyungang Branch and Lianyungang Yabang Acid making Co., Ltd., have resumed production on October 18. the combined operating income of the three companies accounted for 62.97% of the company's 2017 operating income, and the net profit accounted for 96.44% of the company's 2017 net profit.

The hardest times are over and performance is expected to improve month-on-month. Due to the early suspension of production due to environmental protection, the company's performance declined greatly, with a net profit of 274 million yuan in the first three quarters, down 43.5 percent from the same period last year. Because the company is a domestic oligopoly of anthraquinone dyes, the subdivision accounts for about 60% of the national market share, and the company's suspension of production has led to a sharp rise in product prices. According to the operating data disclosed by the company, the average selling price of disperse dyes / vat dyes / solvent dyes / intermediates rose 24.8% 27.3% and 43.3% 106.0% in the first three quarters compared with the same period last year. Among them, the average selling price of Q3 in a single quarter increased significantly by 94.1%, 86.1%, 84.2% and 288.5% compared with the same period last year. As an industry oligarch, the company has stopped production for half a year, and the current inventory level in the industry is very low. Lianyungang Branch and Hua'er Chemical Co., Ltd. are the main anthraquinone dyestuff and intermediate manufacturers. After resuming production, the operating rate needs to be gradually increased, and the product price will remain high. The company's performance fell to a low of 75 million yuan in the third quarter due to a sharp drop in sales and an increase in production costs. At present, the company's main business has begun to resume production, and the performance of Q4 is expected to improve gradually.

The proposed acquisition of Xuzhou Kaida to further enhance the status of the vat dye industry, the acquisition of Ningxia Yadong extension of the pesticide industry chain, and is expected to achieve part of the production capacity transfer, spread the risk. The company signed a "letter of intent" with Xuzhou Kaida Chemical on September 6, reaching a preliminary intention on the company's proposed acquisition of Keda Chemical. Kaida Chemical is mainly engaged in the production, operation and export of vat dyes and dye intermediates, with an annual production capacity of 10000 tons, and is also a key supplier of military camouflage dyes in China. The company's acquisition of Keda Chemical will further enhance its industry dominance in the field of vat dyes and enhance its profitability. The company completed the acquisition of Henglong crops, the pesticide asset of the group at the beginning of the year. Under normal production and operation, Henglong crop performance is more than 90 million, and there are a number of reserve varieties waiting for construction, with long-term growth. At the same time, Henglong crops bought 100% equity in Ningxia Yadong with RMB 132 million, and Ningxia Yadong mainly produces herbicide intermediates, while a number of products are important raw materials for Henglong crops, and the industrial chain extends upstream after the acquisition. Ningxia Yadong's audited net profits in 2019,2020 and 2021 will be no less than 21 million yuan, 18 million yuan and 18 million yuan respectively, and the cumulative net profit over the past three years will be 57 million yuan. In addition, the company's original production base is concentrated in Guannan Chemical Park, and after the acquisition of Xuzhou Kaida and Yadong in Ningxia, the company's main business production capacity of dyes and pesticides is expected to be partially transferred, which is conducive to risk diversification.

The circular economy of the park is expected to reflect in the future and cut into the pigment market in the future. The company has built its own sulfuric acid and cogeneration project to create a circular economy system in the park. After the park is fully restored, the economic effect is expected to be fully reflected. In addition, the company signed an "investment contract" with the management committee of Lianyungang Chemical Park, and four phases of the project will be built on 1000 mu of land. except for the first phase of the project, the other three phases are pigment projects, which will become another new growth point for the company's development in the future.

Investment suggestion: the company's main business gradually resumes production, the performance is expected to continue to improve, the risk warning is withdrawn smoothly, and the "overweight" rating is maintained; maintain the profit forecast, the estimated 2018-20 return net profit is 4.41,6.15,790 million yuan, EPS 0.77,1.07,1.37 yuan, corresponding to PE 13x, 9x, 7X.

Risk hint: the resumption of production of other subsidiaries is less than expected, product prices fall, and acquisitions fall short of expectations.