Recommended logic: 1. The price of raw milk is expected to solidify and rebound: domestic raw milk demand is growing at a rate of 5%-10%, supply-side domestic and international production capacity is accelerating, and the impact on international bulk powder imports is slowing down. At the same time, domestic bulk powder stocks are gradually being cleared, and the relationship between supply and demand has improved markedly. Domestic large-scale ranches have all entered large-scale losses, and there is nothing to fall in the price of raw milk. Fonterra's auction prices have begun to rise, leading to a recovery in domestic raw milk prices. 2. The company's fresh milk and dairy products business will fully benefit from the recovery in raw milk prices, and the performance is fully flexible. The beef cattle business is expected to cultivate new profit growth points in the future. The relationship between supply and demand has improved, and the price of raw milk is expected to solidify and pick up: Currently, domestic demand for raw milk has maintained a growth rate of 5% to 10%, which is relatively stable. The supply side is gradually shrinking: 1. Since 2015, milk prices have fallen below the cost line of retail farmers, and a large number of retail dairy farmers have chosen to kill cows to sell meat, speeding up their exit; large-scale ranches have entered a stage of large-scale losses in the second quarter of this year, and the proportion of abnormal elimination has increased dramatically, and the number of domestic dairy cows has gradually declined. 2. The impact of international bulk powder (mainly New Zealand) is slowing down: In the face of sluggish demand in the global dairy market, New Zealand, Australia, Argentina and other countries have successively cut production. Among them, New Zealand, which accounts for more than 60% of global raw milk exports, produced -6% of whole milk powder in 2015 and -11% of skimmed milk powder production in 2015. Raw milk production is on a downward trend. It is expected that international raw milk supply will bottom out in the future (Fonterra auction price recently increased by more than 50%). 3. Domestic bulk powder stocks are gradually being cleared out: The stocks of large packaging powder of leading domestic dairy products companies have declined sharply. Currently, the stock is around 5-10 million tons, a sharp drop from the previous historical high of 400,000 to 500,000 tons. Domestic stocks of low-priced bulk powder are gradually being cleared, and the supply side has shrunk further. 4. Domestic fresh milk prices lag behind Fonterra's auction price by 3-6 months, and are expected to reach an inflection point in the first quarter of next year. Milk and meat go hand in hand. The dairy business benefits from rising raw milk prices, and beef cattle are cultivating profit points: 1. As the only listed company in the two cities to prepare raw milk for export, the company will directly benefit from the rise in raw milk prices, and its short-term performance is flexible; 2. The dairy business benefits from the cost advantage brought about by the rise in raw milk prices, and is optimistic that the domestic and foreign markets will work together in the future. Huayuan Dairy enjoys a high level of popularity within the country. Profitability has declined sharply since the second half of 2015 due to the low price competition strategy of leading dairy products. As raw milk prices rise and competition slows down, future performance will regain an upward trend. Ximu Dairy is developing overseas. Currently, it is in a period of market development. Expenses are high, causing large losses in the dairy products business, and we are waiting for expenses abroad to be reduced. 3. The company is actively developing beef cattle business outside the country. The acquired subsidiary Zhejiang Yiheng Animal Husbandry Infrastructure is expected to end by the end of 2016, and it is expected that it will begin importing live beef next year. With the increase in the number of live beef imported by the company from Australia and the completion of sales channels in the Yangtze River Delta region, the beef cattle business will experience explosive growth in the future and become a new profit growth point for the company. Profit forecast and investment advice: It is expected that the compound growth rate of the company's revenue will reach 22% in 2016-2018, and the compound growth rate of net profit from the mother will reach 58%. As the price of raw milk stabilizes and recovers, the elasticity of the company's performance will be highlighted. First coverage, giving a “buy” rating. Risk warning: milk price risk, livestock disease risk, overseas market development or failure to meet expectations.