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　　 Changjiang Securities Zhang Xiang Zhou Yang

Event description:

　　 Cangzhou Dahua The Board of Directors approved the proposal for public issuance of additional shares, which mainly includes: the company plans to issue no more than 132 million shares, and the total amount of raised funds will not exceed 1.05 billion yuan, which will be used for the following investment projects:

1. 50000 ton TDI technology transformation project: the total investment is 446.1481 million yuan, and the raised capital investment is 430 million yuan.

2. Dinitrotoluene (DNT) technical transformation project: the total investment is 84065900 yuan; The raised capital investment is 40 million yuan.

3. 135000 t/a nitric acid project: the total investment of the project is 209.27 million yuan, and the raised capital investment is 200 million yuan.

4. 160000 tons of ionic membrane caustic soda project: the total investment of the project is 456.96 million yuan, and the investment of the raised funds is 380 million yuan.

Event comment:

The technical transformation of 50000 ton TDI is based on the original 50000 ton Juhai unit. After the completion of the technical transformation, the capacity of a single unit will be increased to 80000 tons. According to the announcement, we expect that the installation and transformation will be carried out in the first half of 2014. After the transformation, the company's TDI capacity will reach 180000 tons, and its equity capacity will reach 165000 tons.

DNT, nitric acid, caustic soda and other supporting projects are expected to start construction in early 2013. According to the market construction progress, they are expected to be completed and put into operation in early 2014; We believe that the completion of supporting projects will further consolidate the advantages of Dahua in TDI business.

According to the analysis of the feasibility report of the company, after the completion of the four major projects, it is estimated that the company will be provided with a net profit of about 200 million yuan every year.

According to the process, the proposal of this public offering still needs to be approved by the shareholders' meeting and reviewed by the CSRC. Compared with the case of A-share public offering, it is expected that if all goes well, the public offering will be completed in the second half of 2013.

We predict that the company's earnings per share in 2012-2013 will be 1.41 yuan and 1.72 yuan respectively, and the current stock price will be 13.77 yuan, with corresponding P/E ratios of 10 and 8 times, maintaining the "recommended" rating of the company.

Risk factors: falling TDI price, rising natural gas price, and urea shutdown affect performance.

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