Core view: Guangzhou Langqi issued a series of announcements recently with the characteristics of a company with “hidden assets” + “reverse transformation in adversity”. Combining the fundamentals of the past, we believe it has the characteristics of a “hidden asset type” + “adversity reverse transformation” company. “Hidden asset type company”: Production capacity in Guangzhou Langqi's old factory area has been discontinued, and land transfer is imminent. According to the demolition compensation policy shown in public information, the company is expected to obtain a cash inflow of around 2 billion yuan through land concessions by 2015. “Companies that reverse transformation in adversity”: State-owned enterprises are engaged in the competitive industry of daily chemicals and have inherently inadequate mechanisms. It is reasonable that Guangzhou Langqi's profitability has been low for a long time. According to logical inference, it is unlikely that its actual controller, the Guangzhou Municipal State-owned Assets Administration Commission, will not play the role of this financing platform for a long time. Therefore, we believe that it is not ruled out that Guangzhou Langqi will experience a “reversal of adversity” under the control of the actual controller. The land transfer contains huge potential benefits. On August 6, 2013, the company's market value was 3.14 billion yuan. Under the neutral assumption that land, a “hidden asset,” can bring in 2 billion yuan in cash inflows in the foreseeable future and that this is deducted from the company's market value, the company's remaining assets and business correspond to a market value of about 1.14 billion yuan. The company's latest periodic report revealed net assets of 1.02 billion dollars, which is equivalent to about 1.1 times the company's current PB. The merger and acquisition of Qiheng Agrochemical may be the beginning of a reversal of adversity. The company recently announced that it intends to acquire 25% of Qiheng Agrochemical's shares. We believe that this merger and acquisition has two implications. On the one hand, the company can predict the future and there will be a large cash inflow. This acquisition is the company's pre-arrangement for future cash; on the other hand, this acquisition should be a sign and beginning of Guangzhou Langqi's “reversal of adversity.” The benefit protection mechanism for this acquisition is quite complete; looking at the next four years, Qiheng Agrochemical's Good Growth Announcement shows that in 2013-2017, Qiheng Agrochemical's net profit forecasts are: 65,2651 million yuan; 103 million yuan, 115 million yuan, 140 million yuan, and 159 million yuan, respectively. Wang Jian, a shareholder of Qiheng Agrochemical, made a performance commitment based on this. According to the “Daily Economic News” report, Qiheng Agrochemical is expected to go public, the actual controller of Qiheng Agrochemical once publicly stated, “We plan to enter the SME market within 3 to 5 years. Law firms, accounting firms, etc. have now decided, and we plan to identify a sponsor agency in October this year.” Profit forecasts and investment recommendations After considering the investment income of Qiheng Agrochemical, we estimate that the company's 2013-2015 EPS was 0.08 yuan, 0.12 yuan, and 0.14 yuan respectively. The current stock price is more than 80 times that of PE in 2013. The above results do not include the high non-recurring benefits that may be brought about by the company's land concessions. Seen from this perspective, companies have the characteristics of two types of companies: “hidden assets” and “reverse transformation in adversity.” However, since the company's main daily chemicals business did not see any significant signs of improvement, it gave it a “prudent increase in holdings” rating. Risk warning 1. Poor market development; 2. Rising operating costs; 3. Land compensation falls far short of expectations.