Incident: On the evening of October 28, Western Animal Husbandry released its three-quarter report. In the first three quarters, the company achieved operating income of 501 million yuan, a year-on-year decline of 3.88%, and a loss of 57.72 million yuan; of these, in the third quarter, the company achieved operating income of 165 million yuan, a loss of 31.07 million yuan; the low price of raw milk in the country led to serious losses. Raw milk is sluggish, leading to increased losses. Domestic raw milk prices during the reporting period fell to 3.4 yuan/kg in the third quarter, down from about 3.6 yuan in the same period last year, due to the impact of large packages of imported milk. At the same time, due to the increase in imported large bags of powder, the company's sales pressure has increased, the proportion of powder spraying has increased, and the company's share of fresh milk sales has declined, which has also led to serious losses in the company's breeding business. In addition, the increase in expenses caused by the company's investment in the deep processing of dairy products in marketing has also increased the company's losses. Global production capacity has been removed, and the reversal of raw milk is imminent. Global milk prices have been close to feed costs for a year, leading to continued consumption of global farm cash flow. Major dairy farming, such as New Zealand, Australia, and Argentina, is in a production reduction cycle; the European Union has also begun implementing production reduction plans. At the same time, in the context of continuous capacity removal, the auction price of Fonterra whole milk powder, the trend of global raw milk, rose from 2,062 US dollars/ton to 2,681 US dollars/ton, and milk prices entered a price reversal cycle. The company enjoys the double flexibility of production and price. The company's dairy farming business was mainly introduced after 13 years. The company's cows gradually entered a production cycle. Against the backdrop of price reversal, the company's profit elasticity was high. At the same time, the company's layout in the dairy products and beef cattle slaughter business will also increase the company's profits. Profit forecasting and valuation. We expect the company's net profit for 2016-2018 to be -47 million yuan, 98 million yuan and 325 million yuan, corresponding to EPS of -0.22 yuan, 0.47 yuan and 1.54 yuan; corresponding PE to -75 times, 36 times and 11 times, maintaining the company's “increased holdings” rating. Risk warning. The risk of major outbreaks and milk production fell short of expectations.