Key investment events: Yurun Foods issued a profit warning. The 12-year performance was significantly lower and worse than the 11-year forecast. Profit estimates are in line with expectations. We estimate the main operating loss to HK$681 million. We estimate that the main operating losses are mainly due to lower slaughter volume and a decline in gross margin. We estimate the slaughter volume for 12 years to be 13.61 million heads, down 11% year on year from 15.32 million heads in the previous year (6.97 million heads in the second half of 2012, up 6% year on year), gross margin for 12 years is 3.5% and 6.6% for 11 years. Maintain long-term optimism. We estimate that the slaughter volume will reach 30 million heads in fiscal year 2015 (corresponding to a compound growth rate of more than 30% in 13-15 years), partly based on the parent company's aquaculture production capacity of 10 million heads before 2015 and the annual procurement volume of 5 million heads (15% of total procurement volume) under the framework of related transactions with the parent company. Moreover, the government has introduced more and more policies to support the pig industry, such as plans to reduce the number of slaughterhouses from the current 19,000+ to 3,000 by 2015. Also, the Ministry of Finance recently introduced an increase in pig farming insurance premium subsidies (pig farmers can pay ~ 80% less in premiums after applying the supplement). Management aims to increase capacity utilization to 60% by 2015, and economies of scale will be felt, and we expect gross margin to recover. If the company continues to execute its expansion plans, a high compound growth rate and revaluation can be expected. Valuation and target price: We maintain our point of view as the current double bottom of valuation and profit for long-term investors. We believe that the profit margin in the second half of 2012 has been reduced, and the company will turn profit in the first half of '13, based on a 20% increase in slaughter volume in '13 and a return to the 11-year level of gross profit in the second half of '13. We maintain an increase in holdings rating, with a target price of HK$8.5, based on our 12-14 earnings per share forecast of HKD 0.375/0.136/0.352 (HKD 0.18/0.41/0.63 after other income included). The company's current stock price corresponds to 0.7 times the 13-year net market ratio. Poor earnings in 2012 and risks in corporate governance have already been reflected in stock prices, and profit recovery is highly elastic. The long-term integration of pig farming and slaughtering industries is the government's focus, and we expect more support policies to be introduced in the future. Key hypotheses: 1) The average pig price rose 5% in fiscal year 13; 2) the slaughter volume growth rate increased to 20%, and gross margin rebounded to 7.3% in '13 (8.6% in '11); 3) other income fell 50% year over year as production capacity expansion slowed down. Stock price catalysts: The space for revaluation will come from a continuous increase in slaughter volume and recovery in gross profit. Other positive catalysts include stabilizing pig prices under sufficient supply, further increases in holdings by management and major shareholders, and control of slaughter licenses. Risks: The pace of recovery is slow, pig prices are rising rapidly, and corporate governance issues.