The insufficient endowment of agricultural resources in China makes overseas mergers and acquisitions imperative. 1) less cultivated land resources and more pollution. The area of arable land per capita is less than half of the world average. In the past 14 years, the total over-standard rate of soil was 16%, and that of cultivated land was 19%. 2) the agricultural population decreased. With a urbanization rate of 56% in the past 15 years, there has been a massive outflow of rural youth labor force and a serious aging of surplus labor force. 3) the production cost is obviously higher than that of overseas, and the degree of import dependence is high. Soybean imports accounted for 94% of consumption in the past 15 years. 4) the national grain reserves are only enough for the residents' food rations, the farmed feed basically depends on foreign imports, and the import price is controlled by others, so it is imperative for Chinese capital to acquire overseas.

Brazilian acquisition projects are expected to directly link resources and increase domestic food supply. Brazil is very likely to become the source of China's strategic grain reserves and improve its bargaining power in the future. 1) Brazil has the largest reserves of arable land. It is estimated that the output of agricultural products in 19 years will account for 35% of the world's total output, soybeans and corn account for the second and third of global exports, respectively. Brazil's annual grain exports are basically equal to China's imports. 2) there is room for land appreciation. It increased by 15% in 2005-15 and 18% in the past three years. 3) the price of corn and soybean in Brazil is the CIF price of China, and the advantage of pig farming is obvious. The cost of feed accounts for 50% of the cost of raising pigs, and there is no cost of environmental protection for Brazilian land.

The company makes every effort to build a global agricultural trade platform. 1) the major shareholder Pengxin Group controls a number of listed companies (Guozhong Water, Pengxin Resources, etc.), distributes agriculture overseas for more than 10 years, owns South American farms (120 million hectares of farmland in Bolivia), South African minerals, etc., and has rich experience. 2) the listed company has 4 billion in cash and has set up an international agricultural M & A fund of 5 billion yuan with Paradise Silicon Valley, with an asset-liability ratio of only 20%. There is room for additional issuance and dilution if the shareholding ratio of major shareholders exceeds 60%. 3) there are layouts in New Zealand and Australia, and 29 pastures in New Zealand are under the approval of OIO. It is expected that 2H16 will be approved. 4) Dakang may become a private platform for China's grain strategy to go out to sea in the future. Brazil's agricultural financing interest rate is as high as 12-20%, and the grain transport capacity is far less than the production capacity (insufficient port capacity). The grain supply chain has huge room for fixed asset investment and agricultural financial spreads.

After the merger, Fiagril may become one of the integration platforms in Brazil, which is of milestone significance. 1) Dakang spent US $200 million to acquire a stake in F58%, and F Company promised that the average EBITDA for fiscal year 17-19 would not be less than US $90.94 million; 2) F worked directly with 2000 farmers for a long time to provide agricultural materials and agricultural technology services in exchange for agricultural products. The purchase of crops in the 1415 receiving season is as high as 2.9 million tons, with a compound growth rate of 18% in recent years. 2) Brazil is vast and sparsely populated and needs a lot of chemical fertilizer and pesticide resources. In the future, Dakang can integrate agrochemical resources and export them to Brazil, while making use of capital advantages (cash 9 billion + credit + bond issuance + equity issue) to obtain interest spreads on agricultural loans and export crops directly to China. We speculate that there are other possibilities of mergers and acquisitions in the future.

We forecast net profit (including contingent mergers and acquisitions and injection of dairy resources) for 17-19 years to be 13 / 2.5 billion, corresponding to 17 years of 17xPE. It is recommended that active attention be paid to it.

Risk tips: acquisition risk, food safety risk.