Short-term catalysts have sprung up, market risks have been reflected in stock prices, and agricultural industrialization is a long-term topic. There is a risk of revaluation. Pork demand recovery: Due in part to seasonal factors, demand recovery and pork/pork prices can remain strong during the peak season before the Spring Festival. Last week, the price of raw pork and pork was 16.89/25.11 yuan/kg, up 9.1%/8.1% from the average price in 2011. In addition to seasonal factors, based on supply and demand, we anticipate that pork and pork prices will remain strong for most of 2013 (apart from a potential slight backlash after the Lunar New Year). Sales growth will pick up in 2013: management aims to achieve a 20% increase in slaughter volume in 2013. We believe that this growth will be supported by the following factors: 1) the increase in macroeconomics and demand; 2) the integration of pig farming and slaughter; and 3) the development of sales channels (such as food and beverage channels). Therefore, we anticipate that slaughter volume and profit ratio will continue to increase, and the main business may have leveled off in the fourth quarter of 2012. Slaughter volume and capacity utilization will rise: previously, we have discussed that excessive slaughter capacity expansion is based on long-term industry integration, but at the cost of low short-term capacity utilization, which drags down production efficiency (negative scale effect) and higher depreciation costs, leading to erosion of gross profit. Recently, we have begun to gather evidence of the company's overall management strategy: Yu Run Group has begun to expand upstream pig farms, which is to supplement the slaughter production capacity of listed companies. We expect that the parent company's pig production capacity will exceed 10 million heads by 2015. Under the pig supply agreement (approved by the board of directors), Yurun's production capacity utilization rate will gradually increase. Agricultural industrialization drives industry integration and creates uniqueness for slaughtering production capacity: the current state of scattered agricultural production in China is the main cause of the imbalance between agricultural supply and demand, and has also led to unstable farmers' incomes and price fluctuations. Industrialization of agricultural products will reduce market risk by further integrating the value chain and achieving economies of scale by leading the industry. Yu Jun is a founding member of the Agricultural Industry Leading Enterprise Association, which is supervised by the State Council and the Ministry of Agriculture. According to the “12th Five-Year Meat Industry Development Research Report” issued by the China Meat Association, the government adopted measures to reduce the sales ratio of hot meat to less than 50% (currently above 80%) and increase the proportion of chilled meat to 30% (currently below 10%). The Ministry of Commerce is seeking to control slaughter licenses and will reduce the number of various slaughterhouses from 21,000 to 3,000 by 2015. As of the first half of 2012, chilled meat accounted for 79.4% of Yurun's total revenue. Yu Run has established 58 large-scale slaughterhouses across the country, with a total production capacity of 48.45 million heads. In a favorable policy environment, Yurun's rapid expansion will eventually enjoy exclusivity. Valuation and target price: Currently, for long-term investors, the company's valuation and profit growth rate are at historic lows. We expect raw pork and pork prices to remain strong for most of 2013, except for a slight return after the Lunar New Year. As a result, we increased the average product price increase in 2013 from 0% to 5%. At the same time, we expect gross profit to expand as capacity utilization increases, so we raised our profit forecast for 2013/14 from HK$0.53/0.66 to HK$0.56/0.69, and to an increase in holdings rating, with a target price of HK$8.5. Currently, the company's stock price corresponds to 11.5 times the 13-year price-earnings ratio and 0.7 times the 13-year net market ratio. Poor performance in 2012 and corporate governance issues are already reflected in the stock price. As the market sees an increase in slaughter volume and capacity utilization, a revaluation is imminent. Key hypotheses: pig prices remained stable for most of 2013; slaughter volume growth rebounded to double digits, profit ratio recovered; FY12/13 gross margin recovered to 5.9%/8% (down from 8.6% in 2011). Catalysts: The sales/profit ratio recovered faster than expected, the supply of pigs was sufficient and prices were stable, management or major shareholders increased their holdings one step further, and the promotion of slaughter restrictions. Risks: slow recovery, corporate governance issues.