Event: Yufu Food Bulletin 12-year report: sales revenue fell 17.1% to 26.782 billion, but the income ratio in the second half of 12 increased by 13.8% to 142.52 billion. The gross profit margin fell to 1.5% and reached 605 million yuan, which is roughly in line with our forecast and the company's profit forecast. Diluted earnings per share was HK $0.332. The main improvement came from the total slaughtering capacity of 1379 million tons, higher than the expected figure of 1361 million tons. The slaughtering capacity in the second half of 12 years was 7.15 million tons, an increase of 7.7%, which is better than the 0.9% increase in the first half of 12 years.

There is an understanding that the decline in the gross margin of upstream services is the main reason for the decline in sales. Upstream cold meat / pork accounted for 76% of sales revenue in 2012, compared with 74% in 2011. The gross profit margin of upstream cold pork / bacon fell to 1.7% /-11.2%, compared with 6.6% and 5.9% in 2011. We believe that the weakness in the upstream gross margin is mainly due to 1) the sharp decline and strong volatility in China in 2012, which has led to a poor record of meat sales, as its products are usually stored for 3-6 months; and 2) the new market where the new market is located takes time to develop. Yuyang added 18 new production bases in the second half of 12 years, so nearby markets need to be nurtured by local economic development and need to be promoted at an initial discount. 3) the 18 new industries have led to the discount of more than 300 million Hong Kong dollars and other expenses. At the same time, gross profit margins from downstream continued to rise from 15.1% to 17.7% in the first half of 12 years.

The focus of 2013 is the recovery of gross profit margin. Rain management said that it is now starting to focus on the recovery of gross profit margin on upstream services, which account for 90% of the dairy industry's sales revenue. Measures include: 1) marketing; 2) improving investment and brand communication with consumers; 3) developing new products to cater to different new sales channels, including linked restaurants, manufacturing companies, especially stores and supermarkets; 4) improving the marketing process to improve the production efficiency of large-scale farms.

The production capacity can be easily released. To support the shift of 2013 of the focus to the increase in gross profit margin. To manage and reduce the capital expenditure of slaughtering production capacity to 1 billion Hong Kong dollars and limit it to projects that have already started construction. We agree to manage the speed at which we treat each other, and note that the new management team, which took office in July 2012, has made a commitment to increase the service development strategy from enhanced investment to dedicated gross profit margin, because the cost expenditure plan has been cut from more than 5 billion Hong Kong dollars in 2011 to 2.4 billion Hong Kong dollars in 2012 and 1 billion Hong Kong dollars in 2013. The basis for managers' confidence in doing so is the continued improvement in total slaughtering capacity, especially an increase of 7.7% to 7.15 million tons in the second half of 12.

Continuous slaughtering production can integrate and support positive industry prospects. The Chinese government further regulates the supervision of the health care industry and introduces inspection measures on all qualified raw food slaughtering plants to improve food safety. In addition, as of 2012, the number of fixed-point slaughterhouses and small-scale slaughterhouses decreased by 22.5% and 27.7% compared with the same period last year. The total number of slaughterhouses decreased by 26.2% compared with the same period last year. Coupled with the recent economic and social security problems in the Ministry of political Affairs, we believe that industry restructuring and integration will benefit the industry. Under the framework of closed transactions (the agreement between Yushan Foods and the parent company shows that the slaughtering capacity of Rain Foods reached 30 million tons in 2015, corresponding to a 30% growth rate in 2013-15). As a result, the utilization rate of production capacity will be improved and the regulation effect will be realized, and our expected gross profit margin will recover.

Valuation and headline: we hold our point. For long-term investors, rainy weather is currently the historical bottom of valuation and earnings growth. We believe that profits have been good over the past 13 years due to the increase in slaughtering volume and the recovery of gross profit margin. We maintain the increase level, the latest target is HK $7.2, earnings per share for 13-15 is HKD 0.165G 0.432max 0.750. At present, the stock market corresponds to 0.67 times the market price in 13 years, 12 years of poor profits and corporate governance problems have been reflected in the stock market, and the profit recovery is high. Long-term agricultural industry integration is the focus of the government, and we expect to come up with more support policies in the future.

Related assumptions: 1) the average slaughtering rate was stable in 13 years; 2) the slaughtering volume increased by 12% and the gross profit margin recovered to 6.6% (8.6% in 11 years); 3) the sharp release of production capacity led to a 63% decrease in other income compared with the same period last year.

Catalytic revaluation: the revaluation comes from the continued increase in slaughtering volume and the recovery of gross profit margin. Other positive catalysts include the government's policy to support the integration of the agricultural industry, the improvement of supply and supply, and the further increase of management and large stock holdings. Investment: slaughtering volume and gross profit margin are slow to recover, supply of raw materials is declining, and corporate governance problems.