Recently, the company disclosed semi-annual reports: operating income of 480 million yuan/ +8.72% for the first half of 2016; net profit of 34.959 million yuan/ -5.96%; net income of 145 million yuan/ -8.01% in the second quarter; net profit of 27.4634 million yuan/ -12.61%; net profit of 27.4634 million yuan/ -12.61%. The basic EPS is 0.07 yuan. Revenue from rice wine is growing steadily, and business outside the province is expected to break the game. In the first half of 2016, the company achieved revenue of 473 million yuan/ +8.36% of rice wine, of which revenue within Shanghai was 377 million yuan/ -3.32%; revenue outside Shanghai was 100 million yuan/ +102.39%, mainly due to the time difference between the merger of Wuxi Zhentai Liquor Co., Ltd. In the first half of the year, the company achieved an overall gross profit margin of 48.17%, a year-on-year decrease of 1.70pct; alcohol gross profit margin of 48.29%, a year-on-year decrease of 1.67pct, mainly due to the rapid increase in operating costs over the previous year. The overall cost rate remains stable. The company's overall cost rate for the first half of 2016 was 35.72%, a year-on-year decrease of 1.16 pct. Among them, the sales expense ratio was 19.76%, an increase of 1.37 pct over the previous year, mainly due to the increase in business operating expenses and expenses related to wages and remuneration; the management expense ratio was 15.81%, and the control results were remarkable, with a year-on-year decrease of 2.88 pct; and the financial expenses ratio was 0.15%, an increase of 0.38 pct over the previous year. The company achieved net operating cash flow of 488.731 million yuan, a year-on-year decrease of 74.26%, mainly due to early sales expenses and other reasons. Acquire Wuxi Zhentai Liquor to build a cross-regional rice wine map between Jiangsu, Zhejiang, and Shanghai. Jinfeng Liquor's rice wine products mainly include “Shikumen,” “He,” and “Golden Age,” which are positioned as high-end, popular brands, and young brands respectively. The company has an absolute advantage in the Shanghai market, and its market share has maintained over 50% year after year. In 2015, the company acquired 100% of the shares of Wuxi Zhentai Liquor with its own capital of 300 million yuan. In addition to the company's original brands, it was complemented by two major brands, “Huiquan” in Wuxi and “Baita” in Shaoxing, to establish a cross-regional rice wine market in Jiangsu, Zhejiang, and Shanghai. In the first half of the year, the company set up a sales branch with the wholly-owned subsidiary, Wuxi Zhentai Liquor, as the main body, to fully launch the integrated brand layout in southern Jiangsu. The results are already showing initial results. In the first half of the year, Shikumen Brewing Company achieved revenue of 319 million yuan/ -5.16%; Baita Brewing Company achieved revenue of 244.404 million yuan/ +41.59%; and Zhentai Liquor Company achieved revenue of 409.263 million yuan/ +1034.95%. By boosting the wine and cooking wine product line, the three steps in unison helped the company grow. Recently, the company has also stepped up its new business development efforts, and created a new “bold” brand of cooking wine products and its own brand “Meisheng Family” wine products to create a multi-wine business pattern. Because cooking wine and rice wine have a certain degree of similarity, the products can form a good synergy in production and sales. In 2014/3, the company established a wine division to operate “Meisheng Family” wine. The brand concept of Meisheng Family wine is the “wine of a lifetime,” and the brand is positioned as a mass consumer market. Since the current wine market is quite chaotic, it has also provided space for the company to promote wine for mass consumption. There is an urgent need for state-owned enterprise reform to stimulate new impetus for growth. In 2008, when Jinfeng Liquor completed asset restructuring and concentrated on the rice wine business, the pattern of the rice wine industry at the time was that Guyue Longshan had first revenue, Jinfeng Liquor had the highest sales volume, Huijishan had the highest production capacity, and Shaoxing's top brand export volume. Since then, Jinfeng Liquor has gradually lagged behind Guyue Longshan, a leading rice wine company. After Huijishan acquired Wu Feilmao and Tang Song Liquor in 2016, it surpassed Jinfeng Liquor and ranked second in the industry in terms of scale. Under the double influence of external pressure from competitors and the internal dynamics of the Group's state-owned enterprise reform, we judge that the company is expected to begin the reform process. Referring to the experience of sister companies within the group, the company is expected to start from the three aspects of asset integration, introduction of war investment, and equity incentives. Profit forecasts and investment advice. We expect the company to have an EPS of 0.17/0.19/0.21 yuan in 2016-2018, BPS of 3.80/3.93/4.07 yuan in 2016-2018, and a PB 2.67 times that of comparable companies in 2017. Considering that the company's state-owned enterprise reform is expected to accelerate, the company was given 2.95 times PB in 2017, corresponding to the target price of 12 yuan, covering the “increased holdings” rating for the first time. Major uncertainties. Consumption of rice wine is weak, food safety issues.