Incident: The company announced a fixed increase plan to issue no more than 628 million shares, priced at 7.96 yuan per share, and raise no more than 5 billion yuan in capital for: 1 million sheep breeding in Guoyang, Anhui; 200,000 sheep breeding in Huaihua, Hunan; the joint venture establishment of Qingdao Pengxin Xuelong Animal Husbandry Co., Ltd. to implement imported beef, capital increase New Zealand (Shanghai) Dairy Co., Ltd. to implement imported baby milk powder and liquid milk projects and supplement working capital. Comment: 1. After the additional distribution is completed, the company's main business will undergo major changes, which will help maintain stable performance. Currently, the company's main business is pig breeding, feed and meat products, with annual revenue of about 700 million yuan. Due to the single business structure, low gross margin, and the strong cyclical nature of the breeding industry itself, the company's performance fluctuates greatly. After the completion of the additional distribution project, the company will have a richer product structure, including pork, beef, lamb and dairy products. Among them, revenue from lamb, beef, and dairy products will reach 2.4, 2, and 2.5 billion yuan respectively, all of which are far greater than the current scale of the pig business, and future performance growth will be more stable. Furthermore, after the issuance is completed, the actual controller of the company will also become Mr. Jiang Zhaobai, the actual controller of the controlling shareholder Peng Xin Group. 2. Consumption is growing, storage is declining, and large-scale sheep farming potential is huge. Currently, lamb accounts for only 5.5% of the consumption structure of meat products in China. As residents' income increases and consumption attitudes change, lamb consumption will show an upward trend, but due to “returning grazing to grass”, the scale of traditional breeding areas in the north is shrinking, and overall sheep farming volume is declining, so the supply and demand relationship is gradually straining, and the price of live sheep and sheep continues to rise. Limited by technical and management factors, small-scale farming cannot solve the problems of epidemics and pollution, product quality is difficult to guarantee, while large-scale industrial farming has a high threshold and is slow to develop. The company's fund-raising project will draw on a complete volume safety and security system accumulated by pig breeding, establish a traceable food safety system, and implement electronic monitoring of the entire process of breeding, feeding, epidemic prevention, slaughter and processing; it will also introduce and implement an international standard system to implement standardized certification operations for every link in the entire industry chain to ensure food safety. The lamb produced by the company will target the middle and high-end markets, such as star hotels and large supermarkets. The two projects in Guoyang, Anhui and Huaihua, Hunan have a total scale of 1.2 million heads, and are expected to generate annual revenue of 2.4 billion yuan and net profit of 240 million yuan after delivery. 3. Demand for high-quality beef is strong. Imported beef is booming. Beef has the advantages of high protein, good taste, easy cooking, etc., and consumption is growing rapidly. However, domestic farming is mainly small-scale. The cost of labor, feed, etc. has risen in recent years. Farming efficiency is poor, and the cattle raising cycle is long and the risk is high. As a result, the willingness to farm has been greatly reduced. As domestic income levels rise, demand for imported high-quality beef is strong. In 2012, the total import volume was about 99,000 tons, while it reached 175,000 tons in the first five months of this year. Currently, imported beef mainly comes from Australia, New Zealand, and the United States. The transportation distance is long, the cold chain storage requirements are high, the supply is unstable, the import volume of individual enterprises is small, sales channels are chaotic, and food safety is not guaranteed. The company plans to invest 650 million yuan to establish a joint venture to establish Peng Xin Xuelong (accounting for 85% of the shares), import quadruple beef, and rent domestic slaughter and processing plants in Qingdao and Dalian for segmentation and processing. The import division capacity is 150,000 heads/year, and the annual sales revenue is expected to reach 2.04 billion yuan after delivery. 4. Safety demands are getting stronger, and demand for dairy products imports continues to increase as a basic nutritional supplement. The income elasticity of demand is higher than that of necessities of life. As national income increases, consumption demand for dairy products is increasing faster. Since domestic dairy products cannot meet the demands of some high-end consumers for purity and safety, the introduction of fresh and high-quality milk sources from overseas is an important way to meet China's strategic demand for high-quality dairy products. Last year, China imported 1.145,800 tons of dairy products, an increase of 26.5% over the previous year. The company will increase the capital of New Zealand by 1.25 billion yuan to import New Zealand baby formula and liquid milk, build sales channels, carry out product promotion and marketing, and build a “New Zealand” high-end dairy brand, with an estimated annual sales revenue of 2.5 billion yuan. Peng Xin Group, the controlling shareholder of New Zealand (also the controlling shareholder after the company's expansion) owns 16 large-scale dairy farms of 8,000 hectares in New Zealand, providing high-quality milk sources for large enterprises such as MIRAKA and Fonterra, and providing a guarantee for New Zealand to obtain a large amount of pure, safe and secure dairy products in New Zealand. 5. After the completion of the investment strategy company's fixed increase project, it will be transformed into a comprehensive agricultural and animal husbandry enterprise integrating pig, cattle and sheep breeding, processing trade, and dairy products. Since the scale of cattle and sheep farming is low, the technical and management threshold is relatively high, the farming efficiency is average, and the enthusiasm for farming is low, we expect that the growth rate of the scale of cattle and sheep farming will be lower than the growth rate of consumption. There is still room for the price of beef, lamb, and raw milk to rise in the future, and the company will continue to benefit. Currently, there are very few investment targets related to beef, lamb, and raw milk in the A-share market (only a few companies such as Western Animal Husbandry and Fucheng Wufeng). The company can focus on it, but considering the long construction cycle of targeted increases and fund-raising projects, which contribute limited to short-term performance, we will not give profit forecasts and investment ratings for the time being.