Key points: China Tianyi Holdings (hereinafter referred to as “China Tianyi” or “Group”) is the largest producer of frozen orange juice concentrate in China and has a leading position in the industry. According to the semi-annual report for the year ended December 2014, the Group's sales volume fell 29.7% year on year to 196 million yuan. Profit attributable to shareholders was approximately RMB 50295,000, a year-on-year decrease of 27.1%, equivalent to basic earnings per share of approximately RMB 0.04. Despite a decline in profit, the Group's profitability remained at a high level, with gross margin and net interest rates of 30.14% and 25.60% respectively during the period. It is worth noting that China Tianyi's net interest rate was around 21% at the end of fiscal year 2014 (end of June 2014), which is a big gap from the level of around 25% at the end of fiscal year 2013 (end of June 2013). This is mainly due to income tax adjustments. This type of adjustment will have a significant impact on net profit, and predictability is extremely unstable. Therefore, we expect that the upcoming announcement of net profit for fiscal year 2015 will also be affected by taxes. However, if tax effects are deducted, we expect China's net interest rate to continue to rise slowly over the next 2 years. We expect the Group's net profit for the 2015 fiscal year to be around RMB 83 million; overall, China Tianyi still maintains a relatively abundant amount of cash, but overall cash flow has declined compared to previous years. By the end of 2014, its total cash and bank deposits had dropped sharply by 21.9% compared to the end of June 2014. Notably, the group's accounts receivable increased sharply by about 379%. However, since China Tianyi's capital expenditure declined significantly, the Group's financial situation improved markedly. The current ratio during the period rose 1.6 times to 2.8 times from the end of fiscal year 2014 (end of June 2014), and the capital-to-debt ratio also fell from 41.0% to 33.0%. Due to increased competitive pressure in the industry, China Tianyi actively carried out business transformation, vigorously developed non-concentrated reduced orange juice (100% NFC juice) with Senmei as a high-end brand, and increased investment in pipelines, especially the construction of e-commerce networks. With the development of the Chinese juice market and e-commerce industry, there is huge room for future development of the orange juice industry, and China Tianyi's performance is expected to lead to explosive growth; given the broad development prospects of the market, with the Group's leading position in the industry, good profitability and steady business strategy, and considering the recent obvious return of stock prices, we have great confidence in China Tianyi's future performance. Its stock price has already surpassed the previous target price. Therefore, we have sharply raised its 12-month target price to HK$2.00, which is about 77% higher than the latest closing price. In 2016, the price-earnings ratio was 19.0 times and the net profit margin was 1.2 times, maintaining the “buy” rating. Good profitability Tianyi China is the largest producer of frozen concentrated orange juice in China. It has a leading position in the industry. Its main customers include big international brands such as Coca Cola. The semi-annual financial report for the year ended December 2014 shows that the revenue contributed by the Group's largest customer was approximately RMB 94 million, accounting for 47.5% of the total revenue. The revenue from the top 5 customer contributions was approximately RMB 183 million, accounting for 92.9% of total revenue. By the end of 2014, the group's total sales volume fell 29.7% year on year to 196 million yuan. Profit attributable to shareholders amounted to approximately RMB 50295,000, a year-on-year decrease of 27.1%, equivalent to a basic income of approximately RMB 0.04 per share. Despite a decline in profit, the group's profitability remained at a high level, with gross margin and net profit margin separately reaching 30.14% and 25.60% during the period. It is worth noting that China Tianyi's net interest rate was around 21% at the end of fiscal year 2014 (end of June 2014), which is a big gap compared to the level of around 25% at the end of fiscal year 2013 (end of June 2013). This is mainly due to income tax adjustments. Such adjustments will have a significant impact on net profit, and predictability is extremely unstable. Therefore, we anticipate that the net profit for the 2015 fiscal year, which is about to be announced, will also be affected by taxes. Furthermore, if the impact of taxes is deducted, we expect that the net interest rate for national income will continue to rise slowly over the next two years. We expect the Group's net profit for the 2015 fiscal year to be around RMB 83 million. Sales volume is expected to stabilize and pick up. The group's sales situation is one of the key points we pay attention to. Currently, sales of orange juice products still account for the main part of Tianyi's revenue in China. At the end of the fiscal year in the first half of 2015 (ending December 2014), sales of orange juice products accounted for about 49% of total revenue, reaching RMB 96 million. Among them, the profit from frozen orange juice concentrate was about 76 million yuan. Since most of the frozen orange juice concentrate industry in China currently still relies on imports, it is quite obvious that it is affected by overseas markets. Since the second half of 2014, the price of international orange juice concentrate futures has continued to decline, falling sharply from a high of around 170 cents per pound in June to the current level of around 120 cents. The trend in recent months shows that the price of concentrated orange juice futures has begun to gradually rise. We expect the price of orange juice to rise somewhat in the future, which will help improve Tianyi's sales performance in China to a certain extent. Furthermore, fresh orange sales revenue is second only to frozen concentrated orange juice, accounting for about 47.8% of total revenue. This is a sharp increase of 11.5 percentage points from the end of December 2013, reaching 94 million yuan. This was mainly due to a sharp rise in the average selling price of fresh oranges during the period, from RMB 2,080 per gram at the end of December 2013 to RMB 2,550 per ton. We anticipate that the average sales price of fresh oranges will continue to maintain a moderate upward trend in the coming quarters. This means that the share of fresh orange sales revenue in total revenue is likely to continue to rise. At the same time, Tianyi from China actively cooperated with local governments to build production plants in Chongqing, Hunan and Fujian. Currently, the new-style orange garden operated in Chongqing covers an area of about 76,000 acres (equivalent to 50.67 square kilometers), and about 70,000 acres (equivalent to 46.67 square kilometers) of orange groves are under construction, so the group's orange production volume will also rise sharply in the future. At the same time, Tianyi's orange juice yield in China is around 50%, clearly higher than that of its rivals. Therefore, we believe that in the next 2 years, Tianyi's sales volume in China will maintain a steady increase. According to conservative estimates, we assume that by the end of June 2015, the sales price of fresh oranges will rise back to the level of around RMB 2,700 per square meter, and that the sales value of fresh oranges will reach 153 million yuan, accounting for about 32% of the group's total revenue, accounting for an increase of about 4 percentage points compared to the same period in 2014. However, since the sales volume of oranges has declined, overall, we believe that the sales revenue of Tianyi in China was still slightly lower in 2015 than in 2014, but it is expected that there will be a sharp increase starting in 2016. The financial situation has improved, and China Tianyi still has relatively abundant cash, but overall cash flow has declined compared to previous years. By the end of 2014, the group's total cash and bank deposits had dropped sharply by 21.9% compared to the end of June 2014. Notably, the group's accounts receivable increased sharply by about 379%. Furthermore, due to the sharp decline in China's capital expenditure, the group's financial situation improved markedly. The liquidity ratio for the period increased 1.6 times from the end of the 2014 fiscal year (end of June 2014) to 2.8 times, and the capital to debt ratio also fell from 41.0% to 33.0%. Focusing on high-end brands and actively developing sales channels to improve product competitiveness, China Tianyi mainly promotes its high-end brand, Summi (Summi). Since it uses world-leading production technology, Morimei NFC orange juice is unique in terms of taste and nutrition. It has clear product characteristics. With the continuous promotion of NFC orange juice in China, we believe that the market potential for Tianyi orange juice products from China is huge, and this will bring strong support to China's extraordinary sales expression. At the same time, in order to actively improve sales performance and product competitiveness, in the context of the current rapid development of China's consumer retail industry, China Tianyi concentrated its product sales pipeline on three main aspects: one is the middle and high-end department stores in first-tier cities, with Shanghai being one of the main sales sources. Up to now, Tianyi China has listed products in many department stores such as Takashimaya, Hisamitsu, and Shinsenkan. The second is online e-commerce platform sales. As of the beginning of July, according to data from JD Network, since the opening of the Morimi JD flagship store on May 12 this year, a total of 22,658 visits have been recorded. Among them, there has been a sharp rise until the beginning of July. This shows that through a period of market cultivation and promotion, the recognition of the Senmi brand in the market is gradually increasing; third, sales at special locations, including hotels, movie theaters, bakeries, etc. Judging from the distribution share, 40% of future sales channels will be concentrated in shopping malls and supermarkets; in addition, e-commerce and special sales will each account for 30%. The concentration of risk customers was higher, and sales revenue was greatly affected by the market environment; market competition intensified, product promotion progress was lower than expected; capital pressure increased; and short-term domestic stock prices fell sharply.