Report highlights event description The agricultural seed industry published its 2016 semi-annual report. Incident review In the first half of 2016, the company achieved revenue of 2.25 billion yuan, an increase of 108%; imputed net profit of 8.05 million yuan, an increase of 359%, deducted non-net profit of 4.19 million yuan, a year-on-year reversal of losses, and EPS of 0.007 yuan. Among them, revenue for the second quarter was 1.1 billion yuan, up 94.4%, down 4.27%, imputed net profit of 4.76 million yuan, same decrease of 53%, increase of 44.6%, deduction of non-net profit of 2.19 million yuan, decrease of 69%, increase of 9.72%, and EPS of 0.004 yuan. The merger of subsidiaries and the increase in fertilizer trade volume led to an increase in the company's performance in the first half of the year. In the first half of the year, Henan Agrochemical and Zhoukou Zhongken merged to contribute 1,379 and 195,000 yuan in net profit to the company, respectively (after deduction, the company lost 5.93 million yuan in the first half of the year). In addition, Huaken's international fertilizer trade volume increased during the reporting period (revenue and net profit increased by 92.9% and 199% respectively), driving the company's fertilizer business revenue to increase by 93.1% and gross profit by 78.4%, contributing 5.08 million yuan in net profit to the company. The second quarter was a low sales season for the seed industry, and due to increased marketing efforts, the company's operating costs in the second quarter increased by 104% and sales expenses increased by 21.4%. As a result, the company's gross sales margin and net profit margin decreased by 4.35 and 1.95 percentage points in the second quarter to 4.64% and 0.81%, respectively, resulting in a decline in the second quarter's performance. The company's future outlook is as follows: 1. In the context of state-owned enterprise reform, the integration of group resources is expected to accelerate. Agricultural reclamation reform rules were promulgated to remove barriers to the integration of land resources in reclamation areas, and state-owned enterprise reform continues to advance. Among the company's major shareholders, the Agricultural Development Group owns 4.3 million mu of domestic land (including 700,000 mu of arable land), and the possibility of future injection is not ruled out. 2. Build a scientific research platform to enhance overall competitiveness. The company focuses on building a scientific research platform at the level of listed companies. Through cooperation with external forces (domestic+international), the company obtains advanced scientific and technological resources, and grafts them to subsidiary seed enterprises at the right time, giving full play to their respective advantages and transforming them into commercial varieties. At present, a cooperation agreement has been signed with Boao Jingdian to increase research and development of genetically-modified technology and seize market opportunities. 3. The company's strategic ideas for building an integrated agricultural platform for central enterprises are clear. The first step is to form a large pattern of seeds and pesticides through epitaxial expansion, and the second step is to strengthen it through internal integration, external research cooperation, and the establishment of an “agricultural material+farm+storage” service platform connection model. Give a “buy” rating. We expect the company's 2016 and 2017 EPS to be 0.14 and 0.17 yuan respectively, giving it a “buy” rating. Risk warning: The purchase price is too high; the service system construction and agricultural reclamation reform process do not meet expectations.