Investment logic The biggest milk supplier in Xinjiang is directly benefiting from the recovery in raw milk prices in Xinjiang: due to the long-term low price of domestic raw milk, which cannot fall, the stock volume continues to decline this year or triggers a decline on the supply side, compounded by rising foreign milk prices, we expect domestic raw milk prices to enter an upward cycle next year. As the largest supplier of milk for ranches in Xinjiang, Western Animal Husbandry will directly benefit from the recovery in raw milk prices, and its performance is expected to turn losses into profits. Calves introduced in '14 will enter the lactation period in the second half of this year, and raw milk production is expected to rise sharply: currently the company owns 17,000 to 20,000 cows and controls 20,000 heads on the ranch. Currently, the milk source that can be controlled is about 300 tons/day. It is expected that young cows introduced in '14 will enter the lactation period one after another in the second half of this year. Next year's production volume is expected to reach 450 to 500 tons/day, and production capacity will gradually be released in the future. Downstream Huayuan Dairy and Ximu Dairy were adjusted and started again: In 2015, Huayuan Dairy and Ximu Dairy recorded revenue of 316 million yuan/79.5 million yuan respectively. The profit margin of Huayuan Dairy was about 3.1%, while Ximu Dairy still lost money due to the long period of early transformation. Huayuan Dairy and Ximu Dairy are currently the only two local enterprises in Xinjiang that have obtained licenses to produce, sell and operate infant formula. In the future, the share of infant formula will become the main profit growth point for downstream dairy companies in Ximu. The core assumption is that in 2017, the price of fresh milk reached about 3.55 yuan/kg and could reach the break-even line of western animal husbandry. We expect the price of fresh milk to reach 3.9 yuan/kg in 2017, corresponding to fresh milk revenue of 189 million yuan, +454% over the same period last year. We expect that the participating dairy cows will enter the lactation period one after another in the second half of 2016. After meeting the demand for raw milk from downstream garden and Nishimaki, the company will sell fresh milk to foreign countries. The total milk production volume of self-production+joint venture is estimated at 89,600 tons/159,000 tons/215,000 tons in 2016 to 2018, respectively, while fresh milk production in 2015 was about 36,900 tons, an increase of about 36,900 tons. Investment recommendations We expect the revenue of Western Animal Husbandry to be 579 million yuan/883 million yuan/1,149 million yuan respectively, and the net profit from 2016 to 2018 will be -20.03 million/17.51 million/67.17 million, EPS -0.095/0.083/0.318 yuan, corresponding to PE-183/210/55 times. Considering the scarcity of the raw milk concept in Western Animal Husbandry, we give it an “increase” rating, with a target price of 21 yuan. Risk natural disasters/raw milk production falling short of expectations/food safety risks.