The 2016 performance of Tianyun International ("Tianyun" or "Company") is roughly in line with our expectations. The company's 2016 revenue rose 18.1% year-on-year to 653 million yuan, mainly due to the growth of private brand business revenue. Tianyun's gross margin in 2016 was slightly lower than in 2015. The company reported that the net profit of shareholders increased by 32.9% year-on-year to 129 million yuan, and the adjusted net profit of shareholders increased by 9.7% compared with the same period last year.

Canned fruit, as a kind of snack food, has more room for growth. The per capita consumption of snack food and canned food in China is much lower than that in developed countries. As more consumers realize that canned fruit is as healthy as fresh fruit, their perception of canned fruit is gradually changing. We expect that derived fruit processing products such as jelly, puree and frost will achieve faster growth. China's canned fruit market is in a state of decentralized competition, and Tianyun has the potential to become a well-known leader in canned fruit in China. China's canned fruit exports may not be able to grow rapidly in the future, but the concentration of the fruit canned manufacturing industry is expected to increase.

We downgraded the company's revenue forecasts for 2017 and 2018 because of the low expectations for the OEM business. We think that the fundamentals of Tianyun are very good and the growth potential is visible. Tianyun's current valuation has rebounded by 30% since the 2016 results were announced, but we think buying is still safe. So we reaffirm our "buy" rating and maintain our target price of HK $1.25, which is equivalent to 7.8 times 2017, 6.6 times 2018 and 5.4 times 2019 earnings.