Main points of investment

Event: Zhangzi Island announced its first quarterly report in 2017. the company achieved sales income of 672 million yuan, up 6.09% from the same period last year, and its net profit was 3.69 million yuan, up 139.92% from the same period last year. The net profit after deducting non-return was 5.73 million yuan, up 136.19% from the same period last year. The company expects the net profit of returning home in the first half of 2017 to be 2500-35 million yuan, an increase of 274% and 423% over the same period last year.

The marine pasture resources of the company have returned to normal, and the per unit yield of shrimp and Japanese scallop has increased steadily. In 2014-15, due to the impact of low aquatic prices and natural disasters, the company lost money for two consecutive years. After reconstruction in recent years, the company's marine pasture resources recovered well. We estimate that in 17 years, the main product of Q1 company, shrimp and Japanese scallop, will return to 48 kg per mu, and the fishing area will be 150000 mu. According to the estimated unit price of 38 yuan / kg, the operating income will be 270 million yuan, and the output of other varieties such as sea cucumber, abalone and conch will increase steadily.

The company's expense rate has declined steadily, and the gross profit margin and net profit margin have increased compared with the same period last year. The company's 17-year Q1 realized a net profit of 3.69 million yuan, a sharp increase of 139.92% over the same period last year. The gross profit margin of sales was 17.26%, up 0.81% from the same period last year, and the net sales margin was 0.40%, up 1.82% from the same period last year. The company's operation and management improved significantly, and the expense rate decreased steadily, of which sales expenses were 39 million yuan, accounting for 5.74% of operating income, down 0.65% from the same period last year; management expenses were 34 million yuan, accounting for 4.99% of operating income, down 1.86% from the same period last year; financial expenses were 34 million yuan, accounting for 5.06% of operating income, down 0.28% from the same period last year. The company's non-operating expenses totaled 5.27 million yuan, up 260.44% from the same period last year, mainly used to pay compensation for raft and house maintenance.

Relying on marine pasture resources, the company extends to the downstream food end, and its performance is expected to grow steadily in the next two years.

With the improvement of marine pasture management, in the past 18 years, we estimate that the per unit yield of Japanese scallop is expected to reach 60 kg per mu, which can provide about 700 million gross profit for the company according to the gross profit of 20 yuan per kilogram. At the same time, the company's downstream omni-channel layout continues to improve, international market orders are gradually increasing, and food products, such as minced garlic vermicelli, powdered squid rings and black pepper salmon, will inject new vitality into the company's future food development.

2017 is the first year after the company's post-disaster reconstruction and performance turned into profits. in the long run, whether it is the profit recovery of the original business or the extension breakthrough of the downstream food side, it is worth looking forward to. We estimate that the net profit of the company in 2017 and 2018 will be 2.06 yuan and 305 million yuan, respectively, and the EPS will be 0.29 yuan and 0.43 yuan respectively. We will give 30XPE in 2018 with a target price of 12.9 yuan, maintaining the "overweight" rating.

Risk hints: the fluctuation risk of aquatic product prices; the uncertainty of marine natural conditions.