The company benefited from the rise in pork prices. China's pork prices have been rising continuously since mid-June. at the same time, the pig-to-grain ratio has also regained its 6:1 position. We believe that China's pork prices have entered the upward channel, although there may be a certain degree of shock midway, but the overall upward trend can not be changed. We expect the gross margin of the company's pig farming business to be 18% in 2009 and 23% in 2010, benefiting from rising pork prices.
Education business maintains high gross profit margin growth. The company's education business has always been the main contributor to the company's gross profit margin. In 2007 and 2008, the company's education business gross profit margin was as high as 45%, while the operating income of the education business in the first half of 2009 was 40.8321 million yuan, an increase of 7.2143 million yuan over the same period last year, an increase of 21.46%. The gross profit margin was 53.79%, an increase of 6.97% over the same period last year.
As the education business brings a high gross profit margin for the company, we think that the company will still regard the education business as the company's key business, but as the current size of the school is nearly saturated, it is restricted by the area of the school. therefore, we expect the growth rate of the company's education business to slow down in the next two or three years.
The real estate business is poised to become a major contributor to profits in 2010. The company established a wholly-owned subsidiary "Hainan Jindi Real Estate Co., Ltd." on January 23, 2009, indicating that the company has begun to enter the real estate market. At present, the company is operating the "Jindi Hancheng" project, and we believe that this project will become the main driving force of the company's performance surge in 2010. As the land used in the company's real estate development project is the company's own land, we conservatively estimate that the gross profit margin of the real estate business is 45%.
Profit forecast: we predict that the EPS of the company in 2009 and 2010 will be 0.06 yuan and 0.16 yuan respectively, and the PE of the corresponding stock price will be 84 times and 31 times respectively. We expect that pork prices have begun to pick up and will peak around October 2010, and the company's real estate projects will become the main contributor to the company's profits in 2010. Considering the clear growth of the company's future performance, we give a "buy" rating for the first time.
Risk tips: the double bottom of pork prices, the outbreak of pig epidemic and the operation of pharmaceutical enterprises.