Incident description The agricultural seed industry published its 2016 quarterly report. Incident review The revenue for the first quarter also increased by 123%, net profit reversed losses, and EPS was 0.01 yuan. The company achieved operating income of 1.15 billion yuan in the first quarter of 2016, an increase of 123%; imputed net profit of 3.29 million yuan, reversal of losses over the previous year, deduction of non-net profit of 2 million yuan, year-on-year reversal of losses, and EPS of 0.01 yuan. The increase in fertilizer sales and the merger of subsidiaries were the main reasons for reversal of losses in the first quarter. During the reporting period, the company benefited from the merger of agrochemicals in Henan, and fertilizer sales increased, which led to a sharp increase in operating income of 123% over the same period last year. At the same time, gross sales margin increased by 1.62 percentage points to 4.04%, boosting the company's profit. Furthermore, since Henan Agrochemical, Henan Zaohua, and Wuhan Huguang Agricultural Science jointly contributed part of the company's profits, it was able to turn a loss into a profit in the first quarter. We are firmly optimistic about the company's future development prospects. It is mainly based on: (1) The promulgation of agricultural reclamation reform rules to remove barriers to the integration of land resources in reclamation areas. Among the company's major shareholders, the Agricultural Development Group owns 4.3 million mu of domestic land (including 700,000 mu of arable land), which does not rule out the possibility of future injection, and taking advantage of the advantages of China Agricultural Reclamation Corporation, the second-tier majority shareholder, it is anticipated that the company may integrate farms outside the group and participate in farm equity diversification reforms in the future. (2) The company's strategic ideas for building an integrated platform for central enterprises and agricultural resources are clear. The first step is to form a large pattern of seeds and pesticides through epitaxial expansion, and the second step is to strengthen it through internal integration, external research cooperation, and the creation of an “agricultural material+farm+storage” service platform connection model. (3) In the long run, the company's business model may form a closed loop of integrated “agricultural materials+farm+storage” similar to the four major international grain merchants, with broad development prospects. Reiterate the “buy” rating. We expect the company's 2016 and 2017 EPS to be 0.25 and 0.35 yuan respectively, giving it a “buy” rating. Risk warning: (1) the company's acquisition price is too high; (2) the speed of service system construction falls short of expectations; (3) the agricultural reclamation reform process falls short of expectations.