The 2012/1 quarterly report was in line with expectations: Guannong Co., Ltd. announced its 2012 quarterly report, which achieved operating income of 304 million yuan, an increase of 101% over the previous year; realized investment income of 101 million yuan, an increase of 17% over the previous year; and net profit attributable to shareholders of listed companies was 79.32 million yuan, an increase of 8% over the previous year, or 0.22 yuan per share. Positive: The return on Luo Potash's investment has been rising steadily. The annual starting load of potash in the first quarter was high, and the normal price of potash fertilizer delivery remained stable. At the same time, the company's hydropower projects were running well, which also contributed to stable earnings for the company. The company achieved investment income of 101 million yuan in a single quarter, a record high (about 0.28 yuan in EPS). If the transportation of potassium in Luo continues to be normal, then the company's investment income in 2012 is expected to exceed expectations (we previously assumed that the company's investment income in 2012 could reach 380 million yuan, which remains unchanged for the time being). Potash prices are expected to remain high later. The domestic potash import contract price in the first half of the year was 470 US dollars/ton, and the recent potash price in other regions of the world was still above 500 US dollars/ton, all of which provided strong support for the stability of domestic potash fertilizer prices. Negative: The gross margin of the company's main business has declined. Sales of the company's lint and fruit and vegetable products were good in the first quarter, helping the company's main business revenue to increase by 101% year on year. However, the overall gross margin of the company's main business fell 6% year on year to 10.3%. Considering that the company has fully prepared for impairment of lost main business assets in the fourth quarter of '11, it is worth looking forward to a bottoming out and recovery in the profitability of the main business in the future. Valuation and recommendations: We maintain the company's earnings per share for the 12-13 years at 0.75 yuan and 1.00 yuan respectively, corresponding to the current stock price PE of 25x and 19x, and maintain the “recommended” rating. Risks: 1. India's potash negotiation price is lower than expected; 2. The fall in oil prices affects Brazilian potash demand; 3. Downside risk in market valuation centers.