Event: the company released its results for the first half of 2021, with revenue of 7.292 billion yuan during the reporting period, an increase of 36.4% over the same period last year, and a net profit of 1.188 billion yuan, an increase of 59.6% over the same period last year, with a net interest rate of 16.3%.

Raw milk business maintained a high growth trend, and continued to expand the category of characteristic fresh dairy products to meet the demand of the downstream market. From a sub-sector point of view, 2021H1's raw milk business achieved an income of 4.352 billion yuan, an increase of 36.3% over the same period last year, accounting for 59.7% of the company's total income, and a gross profit margin of 40.4%, down 0.3pct from the same period last year, mainly due to the rising prices of Fonterra China pastures and feed raw materials. In terms of output, 2021H1 produced 947800 tons of raw milk, an increase of 23.2% over the same period last year, mainly due to measures taken by the company, such as improved breeding and feed ratio to improve the overall production performance of the company's herd. The per unit yield of adult cows increased by 5.7% to 11.2 tons / head / year compared with 2020H1. In terms of the number of cows, as of 2021H1, there were 376000 cows, an increase of 30.9% over the same period last year, of which 190000 were adult cows, accounting for 50.5%. In terms of price, the price of raw milk in the reporting period was 4.69 yuan / kg, an increase of 10.7% over the same period last year, leading to a substantial increase in the company's raw milk business revenue. In terms of characteristic fresh milk, the company continued to strengthen R & D and innovation, newly listed organic A2 milk and selenium-rich milk and other characteristic fresh milk during the reporting period, and put into production a 10,000 head organic milk farm at the end of 2020 to meet the demand of the downstream market.

Feed sales have increased significantly, and the business scale of systematic solutions for ruminant farming has continued to expand. 2021H1's systematic solution business for ruminant farming achieved an income of 2.94 billion yuan, an increase of 36.6% over the same period last year, accounting for 40.3% of the company's total revenue, and a gross profit margin of 13%, down 1.3pct from the same period last year, mainly due to the rise in raw material prices. Among them, the income of the feed business reached 2.712 billion yuan, an increase of 37.2% over the same period last year, accounting for 37.2% of the company's total income, mainly due to the company's efforts to open up new markets such as Xinjiang and Gansu, where the market stock is large. Its concentrate feed sales increased by 124.1% over the same period last year, and the number of fine feed cooperative customers of the company also increased by 13.3% over the same period last year. At the same time, during the reporting period, the company took the lead in carrying out a standardized technical service program for beef cattle and sheep breeding. the sales of beef and sheep increased by 209.9% compared with the same period last year. The company also built a new feed production base with an estimated annual production capacity of 400000 tons and continued to expand the scale of feed business. In terms of breeding business, the company achieved an income of 28 million yuan, which was about the same as the same period last year. Through further improvement of herd genetic genes in the industry to improve herd genetic quality and strengthen the core competitiveness of the company's breeding business, the company has built a new world-class core breeding farm in Inner Mongolia during the reporting period. In terms of dairy supermarket business, the company achieved an income of 200 million yuan, an increase of 36.5% over the same period last year. The company continues to drive sales of key products through professional technical services.

The upgrading of dairy consumption is irreversible, and the advantage of the layout barrier of the whole industry chain in the upper reaches of the dairy industry stabilizes the dairy industry. the continuous upgrading of consumption and the growing health awareness of consumers in China have led to a steady growth in the downstream dairy market demand, which is expected to reach 33.3 million tons in 2021, 41 million tons in 2025 and 6% CAGR in 2020-2025. The high-end and differentiated demand for downstream dairy products has also led to a continuous rise in the price of raw milk. In the area of ruminant breeding, with the increasing popularity of large-scale farming, the expansion of the scale of dairy cattle and cattle and the state's promotion of high-quality and efficient development of beef cattle and sheep production have jointly led to the further development of the ruminant feed market. It is estimated that the output of ruminant concentrate feed will reach 17.6 million tons in 2025 and 6% in 2020-2025 CAGR. We believe that, as the leader of the domestic dairy farming industry, the company's business layout covers the whole industry chain upstream of the dairy industry, and the profitability of the scale effect + planting and breeding combination model is outstanding. At the same time, with the first-mover advantage to occupy high-quality pasture resources, the scarcity is highlighted. Superimposed company and downstream dairy enterprise leader Yili strategic cooperation, the future performance is expected to maintain rapid growth.

Investment suggestion: we expect the company's operating income from 2021 to 2023 to be 160.29Universe 187.26 / 21.42 billion yuan, and the net profit to be 23.32Universe 30.633,709 million respectively. Considering the company as the leader of the dairy industry, the layout of the whole industry chain in the upper reaches of the dairy industry and the scarcity of its high-quality pasture resources, it is given a "buy" rating.

Risk tips: COVID-19 epidemic situation; breeding epidemic disease; raw material price fluctuation; major customer dependence risk.