Main points of investment

The company suspended trading for six months to restructure its assets and acquire Australian raw milk. The company suspended trading for asset restructuring, the main acquisition target is the Australian raw milk company VDL, to issue shares and pay cash transactions, the consideration is 1.18 billion yuan, of which the shares pay 860 million yuan (10.05yuan per share) and 320 million yuan in cash. At the same time, the company raised 340 million yuan in non-public offering for cash payment and intermediary fees (priced at 10.05yuan per share). After the completion of the merger and acquisition, in addition to the original sunshade fabric production and sales, the company will be involved in Australian raw milk business and fresh milk import and export trade.

VDL is Australia's largest single milk supplier, and the raw milk business will benefit from the new cycle of milk prices and is trying to sell high-end fresh milk to China. Founded in 1825, VDL currently has 19213 hectares of fertile land in Australia's superior natural environment, 25 dairy farms and about 30, 000 cows. Its milk quality is superior and its protein content is significantly higher than the international standard.

The raw milk business is expected to benefit from the rebound in milk prices. The company's raw milk output in fiscal year 2015 reached 7.66 million kg of solid milk, mainly sold to Fonterra. At present, the main exporting countries of raw milk continue to reduce production, the mid-term inflection point of international milk prices is gradually established, the company's raw milk business is expected to benefit from the new cycle of milk prices, and the profit end is very flexible. N VAN high-end fresh milk distribution business has a bright future. VDL launched the fresh milk brand VAN in early 2015, and its main products are low-temperature pasteurized milk. VAN fresh milk entered the Chinese market as a membership sale in June 2016, targeting high-end families, with a half-year and annual membership package fee of 19000 yuan and 36000 yuan respectively. The Weibo Corp crowdfunding campaign held in September tested the retail market, with sales of more than 15 million.

Investment suggestion: we expect Pioneer to acquire the raw milk business of VDL, which is the main target, to achieve RMB 360 million and RMB 530 million in the next two years, and RMB 110 million and RMB 370 million in fresh milk business respectively. We judge that the inflection point of international milk prices is gradual, and it is expected that the purchase price of milk solids of VDL will rebound by 20% in 2017. under the optimistic assumption, raw milk can contribute 470 million net profit. At the same time, with the upgrading of consumption of high-end imported fresh milk, we expect the number of members of the VAN fresh milk brand to reach 3000 and 10000 in the next two years, with a net profit of 50 million in 2018. Vanguard's old business will achieve 860 million yuan in revenue and 51.51 million yuan in net profit in 2017. The total profits of the three major businesses in the next two years will reach 120 million yuan and 240 million yuan respectively. We believe that this acquisition will greatly increase the revenue and business flexibility of Vanguard Xincai, and we suggest that we pay active attention to it.

Risk hints: M & A transaction risks, food safety issues, fresh milk business expansion is not as expected