Q3 loss was due to Dezhou plant accident's impact on supply chain.
   
The company posted a Rmb6m net loss in Q3, in line with our estimate but at the lowerend of the guidance given in the interim report. On the one hand, slow progresstowards resuming production after the Dezhou plant accident resulted in significantlosses. On the other hand, the accident also affected Lianhe's supply chain, causingrevenue declines for the company's other businesses, while below-peak operating ratesin the pesticide segment led to gross margin declines.
   
We expect sequential improvement in Q4.
   
Although variable-cost margin did not deteriorate in Q3, profit margin declined due toa jump in per-unit depreciation costs given lower processing volume (under 70% of thelevel in Q315). We estimate that the company could swing back to profit in Q4 (thecompany is guiding for Q4 profit of Rmb20-220m), as losses from the Dezhou projectwill decline after production resumes.
   
Industrywide recovery in pesticide exports may continue in 2017.
   
China's pesticide exports (excluding herbicides) have stopped declining and resumedgrowth since mid-year. While recoveries in credit and planting in South America couldhave an adverse impact, exports to Southeast Asia and India have maintained positiveYoY growth. We believe that due to healthy business development for agriculturalproducts, crop protection demand may have already started recovering in certainregions and for certain types of crops.
   
Valuation: Maintain Buy rating.
   
We maintain our Buy rating and Rmb21.16 price target. Our PT is derived by applying23x PE to average 2016-17E EPS. We believe global agricultural crop prices willrebound in 2017, driving a recovery in the crop protection segment. Therefore, weexpect the company's earnings to show noticeable sequential improvement during2017. We see downside risk to our earnings estimates due to the Dezhou accident andits impact on Lianhe's supply chain.