Main points of investment

The market position of agricultural batches is difficult to replace, and the network highlights the value. As the physical gathering point and price formation place of upstream and downstream merchants, agricultural batch market is the core link of agricultural product circulation system. Chain operation helps to form a network in the whole country, improve the efficiency of information circulation and logistics, and match origin, sales and middlemen at all levels. At present, China's agricultural batch market is mainly single operation, and the pattern is scattered. The government plans to form "eight backbone market clusters and about 100 national backbone agricultural products wholesale markets" in 2020. Since the implementation of the network strategy in 2008, the company has accelerated the development of new agricultural markets nationwide, focusing on the selection of logistics node cities, which will form a huge physical network value and enhance the overall profitability.

And with the same market view on the poor profitability of agricultural circulation enterprises, the mature agricultural market has strong profitability and abundant cash flow. The agricultural batch market has a large early investment and a long training period, but once the market is mature, the income, cash flow and profitability are very stable. Commercial matching sales, lease arrangements and government subsidies are also conducive to speeding up cash recovery and realizing rolling development. Over the past 14 years, the company's 16 mature markets have achieved a total income of 1.81 billion, a net profit of 510 million (the company should account for 340 million), and a net interest rate of 28.4%. The monopoly Pinghu market in Shenzhen broke even in two years, with revenue of 330 million in 2014, net profit of 150 million and net interest rate of more than 47 per cent.

Remote expansion drags down short-term performance and expands long-term growth space. The success factors of agricultural batch market include resource support from government and partners, local market competition pattern, planning and positioning, investment promotion and market operation ability, etc. Compared with the Shenzhen base camp, it is more difficult to expand in different places, especially in areas with fierce competition. The company's 14-year cultivation and construction of the market a total loss of more than 150 million (the company should account for 110 million), a drag on the overall performance. The company's physical market expansion and location are more cautious, both under construction and reserve projects are supported by government planning, and some of them are under less pressure for the expansion project. Haiji Star brand and professional investment promotion and management team are in the lead in China. We believe that the mature market will grow steadily in the next few years, and the secondary new market will gradually go through the training period, and the overall profitability will be slowly improved.

Physical market + Chinese cabbage to build a complete ecological circle of agricultural products circulation. The company has actively laid out the field of e-commerce, and has formed the most comprehensive and accurate agricultural product transaction database accumulated in the field of agricultural batches in China, with great realization potential in the future; relying on the B2B platform of sugar industry, silk and cotton, the current online business transaction volume is about 400-50 billion; it has seven B2B/B2C e-commerce platforms, such as Nongmaitian, Haiji Star Mall and Yigu Network. The company integrates the e-commerce platform and supporting resources, and launches the "Chinese cabbage +" strategy, which is similar to the "market network" and "Dianping" in the field of agricultural product circulation, and builds an information platform around agricultural wholesalers all over the country, with the physical market as the main body. the e-commerce platform covers producing areas and sales, and relies on massive circulation data, combined with logistics, testing and financial supporting business to form a complete ecological circle for the large circulation of agricultural products. There will be a huge synergy.

Be optimistic about the promotion of the company's e-commerce strategy, the value of online and offline integrated agricultural product circulation platform, and maintain the "recommended" rating. Agricultural products circulation is in the tuyere of key government support and capital concern. Recently, the company, Shenzhen Jinzhi Investment and Shenzhen Express Capital have set up a joint venture fund for the development of agricultural products circulation industry in Shenzhen, with a scale of 2.5 billion, which is conducive to the implementation of the company's strategic planning. The revaluation value of the equity land area of the company entity agricultural grant market is nearly 50 billion, which provides a high safety margin for the company's market capitalization. The reform of state-owned enterprises is expected to accelerate the release of the company's performance and asset value. Maintain the "recommended" rating with a target price of 22 yuan.

Risk tips: the cultivation of new markets is not as expected; the investment period of reserve projects is lengthened; the progress of the reform of state-owned enterprises is slow or not up to expectations.