Investment logic company overview: Forestry companies restructure and transform custom furniture business. Since its establishment in 1994, the company has focused on the forestry industry and developed into a forest board integrated group enterprise. In 2015, the company acquired 100% of Senyuan Furniture's shares through the issuance of shares and cash acquisitions, extending the forest industry chain to the downstream furniture and home improvement business. After completing the acquisition, the company's overall performance was also greatly boosted. In the first three quarters of 2016, the company achieved main business revenue of 1111.1634 million yuan, a year-on-year growth rate of 202.22%, and net profit of 13.4532 million yuan, a year-on-year growth rate of 50.66%. The rise in fiberboard prices is driving up the company's performance, the post-real estate cycle effect is weakening, and custom furniture is definitely growing. In 2015, the sales revenue of the Chinese fiber board industry reached 97.728 billion yuan, with a year-on-year growth rate of 39.27%, and the industry as a whole maintained a steady development trend. We think there are five main reasons for the rise in board prices that began in October last year, namely the environmental trend, forest farm logging restrictions, road transport management, lower exchange rates, and a blowout in demand. In 2016, the overall revenue of China's furniture industry reached 855.950 billion yuan, an increase of 8.60% over the previous year, and the industry continued to maintain a moderate growth rate. On the demand side: 1) We believe that the post-real estate cycle effect is gradually weakening at this stage. In the process, second-hand housing and refurbished housing have become new sources of demand in the furniture market. 2) Currently, the country is experiencing a third consumption upgrade, and new furniture consumers are on the rise. New consumers have brought new personalized market demands to the furniture industry. As a product that maximizes the individual needs of consumers, custom furniture is optimistic about the future long-term development of this furniture segment. According to our estimates, it will maintain an annual growth rate of more than 18% in the future. 3) In addition to second-hand housing, refurbished housing, and consumption upgrades driving the furniture industry, the fully furnished housing policy and the promotion of urbanization will expand the market demand of the industry. Development bottlenecks were effectively broken through, and the company's performance regained momentum. Company advantages: 1) The total forest management area of the company is 1.81 million mu. Compared with other peers, the company has outstanding advantages in forest resources. 2) The company has a production capacity of 300,000 cubic meters of sheets and can provide E1, E0, “CARB” and “COC” certified products. At the same time, its flooring brand “Yonglin Blue Panther” has received many authoritative certifications at home and abroad. It is one of the top ten flooring brands in China and has excellent brand influence. 3) Through the acquisition of Senyuan Furniture, the company's seedling planting and board manufacturing businesses have been made more targeted and specialized. Both businesses have been upgraded and optimized, and the bottlenecks in the company's development have been broken through. Driven by performance: 1) The company is one of the top five suppliers of raw materials for Jiangshan European wooden doors. On December 1, 2015, the company signed a procurement contract with Jiangshan Oupai, becoming the latter's core strategic partner. On February 10, 2017, Jiangshan Oupai went public and raised 502 million yuan in capital to expand production capacity. The listing and expansion of production by downstream manufacturers will help drive the growth of the company's board business. According to conservative estimates of the procurement of raw materials for fundraising projects disclosed in Jiangshan Europai's prospectus, in 2017-2019, Jiangshan Europai's medium fiber board procurement volume will increase by 1,029.84 cubic meters, 1,379.42 cubic meters, and 1,716.40 cubic meters, respectively. The corresponding additional revenue is 13.2387 million yuan, 17.6516 million yuan, and 24.064 million yuan, respectively. 2) Senyuan Furniture is one of the most well-known and influential furniture manufacturers in China and Asia, and has outstanding advantages in production, design, and marketing networks. Looking at the short term, in 2016, the company completed the consolidation of Senyuan Furniture's annual performance, and the corresponding growth rate of performance was 150%-200%. However, in the medium to long term, Senyuan has launched a high-end private whole-house custom brand on top of the original hotel furniture business. According to Senyuan Furniture's management forecast, by 2019, Senyuan's hotel furniture business and hardcover furniture business will achieve main revenue of 1,189 million yuan and 571 million yuan respectively, with compound growth rates of 7.98% and 18.93%, respectively. Senyuan's custom furniture business will become the main growth point for Yongan Forestry's medium- to long-term performance in the future. Valuation and investment recommendations We forecast the company's fully diluted EPS for 2016-2018 to be 0.38/0.50/0.68 yuan/share. Considering that the production capacity of the custom furniture business will soon be released quickly after the completion of the company's base in Dongguan, we gave the company 36 times PE in 2017, corresponding to the target price of 17.9 yuan/share, a “increase in holdings” rating for the first time. Risk Macroeconomic volatility risk; raw material price fluctuation risk; exchange rate risk.