Events:

The company announced the plan to issue no more than 628 million shares, priced at 7.96 yuan per share, and raised no more than 5 billion yuan. Used for: Anhui Woyang 1 million mutton sheep breeding, Hunan Huaihua 200000 mutton sheep breeding, joint venture Qingdao Pengxin Xuelong Animal Husbandry Co., Ltd. to implement imported beef, increase capital Newshilan (Shanghai) Dairy Co., Ltd. to implement imported baby milk powder and liquid milk projects and supplement liquidity.

Comments:

1. Major changes will take place in the company's main business after the completion of the additional offering, which is conducive to maintaining the stability of performance.

At present, the company's main business is pig breeding, feed and meat products, with an annual income of about 700 million yuan. Due to the single business structure, low gross profit margin and strong periodicity of the breeding industry, the company's performance fluctuates greatly. After the completion of the additional issuance project, the company will have a richer product structure, including pig, beef and dairy products, in which the income from mutton, beef and dairy products will reach 24 yuan, 20 yuan and 2.5 billion yuan respectively, which are far larger than the current scale of pig business. future performance growth will be more stable. In addition, after the completion of the additional issuance, the actual controller of the company will also become the actual controller of the controlling shareholder Pengxin Group, Mr. Jiang Zhaobai.

2. Consumption increases, stocks decline, and large-scale mutton sheep have great potential for breeding.

At present, the proportion of mutton in the consumption structure of meat products in China is only 5.5%. With the increase of residents' income and the change of consumption concept, mutton consumption will show an upward trend, but due to "returning grazing to grassland" and other reasons, the scale of traditional farming areas in the north is shrinking, the overall breeding capacity of mutton sheep is declining, so the relationship between supply and demand is gradually tense, and the prices of live sheep and mutton sheep continue to rise. Limited by technical and management factors, small-scale aquaculture can not solve the problem of epidemic disease and pollution, product quality is difficult to guarantee, while the threshold of industrial large-scale aquaculture is very high, the development is slow. The company's fund-raising project will draw lessons from a complete set of mass safety guarantee system accumulated in pig farming, establish a traceability system of food safety, and implement electronic monitoring of breeding, feeding, epidemic prevention, slaughtering and processing; and will introduce and implement an international standard system to implement standardized certification operations for every link of the whole industry chain to ensure food safety. The mutton produced by the company will be located in the middle and high-end markets, such as star hotels and large supermarkets. The two projects of Woyang in Anhui and Huaihua in Hunan have a total size of 1.2 million, with an estimated annual income of 2.4 billion yuan and a net profit of 240 million yuan.

3. The demand for high-quality beef is strong, and the import volume is blowout.

Beef has the advantages of high protein, good taste, easy cooking and so on, and its consumption increases rapidly. However, China is mainly small-scale farming, in recent years, the cost of labor and feed has risen, the efficiency of breeding is poor, and the cycle of raising cattle is long, and the risk is high, so the willingness to raise cattle is greatly reduced. With the improvement of domestic income level, there is a strong demand for imported high-quality beef. Imports in 2012 were about 99000 tons, compared with 175000 tons in the first five months of this year. At present, imported beef mainly comes from Australia, New Zealand and the United States, with long transportation distance, high cold chain warehousing requirements, unstable supply, small imports from individual enterprises, chaotic sales channels, and food safety can not be guaranteed. The company plans to invest 650 million yuan to set up Pengxin Xuelong (85% of the shares), import tetrad beef, rent slaughtering and processing plants in Qingdao and Dalian, import 150,000 head / year, and estimate annual sales income of 2.04 billion yuan after reaching production.

4. the demand for safety is getting stronger, and the import demand for dairy products continues to increase.

As a basic nutritional supplement, the income elasticity of demand for dairy products is higher than that of daily necessities. With the increase of national income, the consumption demand for dairy products increases faster. As domestic dairy products cannot meet the demands of some high-end consumers for purity and safety, the introduction of overseas pure and high-quality milk sources is an important way to meet China's strategic demand for high-quality dairy products. Last year, China imported 1.1458 million tons of dairy products, an increase of 26.5% over the same period last year. The company will increase the capital of Newshland by 1.25 billion yuan to import New Zealand baby milk powder and liquid milk, build sales channels, carry out product promotion and marketing, and build a "Newshland" high-end dairy brand with an estimated annual sales revenue of 2.5 billion yuan. Pengxin Group (which is also the controlling shareholder of the company after the IPO) owns 16 large dairy farms of 8000 hectares in New Zealand, providing high-quality milk for large enterprises such as MIRAKA and Fonterra, and ensuring Newshland's access to a large number of pure, safe and secure dairy products in New Zealand.

5. Investment strategy

After the completion of the fixed increase project, the company will be transformed into a comprehensive agricultural and animal husbandry enterprise integrating pig, cattle and sheep breeding and processing trade and dairy products. Because the scale of cattle and sheep breeding is low, the threshold of technology and management is relatively high, and the breeding benefit is general, and the breeding enthusiasm is not high, we expect that the growth rate of cattle and sheep breeding scale will be lower than that of consumption. In the future, the price of beef and mutton and raw milk still has room to rise, and the company will continue to benefit. At present, there are few investment targets related to beef and mutton and raw milk in the A-share market (only a few, such as western animal husbandry, Fucheng Wufeng, etc.), the company can focus on, but in view of the long construction cycle of private placement and fund-raising projects and limited contribution to short-term performance, we do not give profit forecasts and investment ratings for the time being.

Risk factors: epidemic disease risk, food safety risk