Incidents: Today's company announcement reports operating income of 1.65 billion yuan from January to June, an increase of 56.44%; net profit of the mother is 16.87 million yuan, a decrease of 75.21%! 1. Environmental protection promotes supply-side reforms in the breeding industry chain, and duck meat prices may rise or exceed expectations. According to grassroots research, duck farming in the Henan region has removed more than 30% of the production space due to environmental protection, and the extent of removal is even greater in the Shandong region. However, most of this backward production capacity is small and medium-sized breeding enterprises close to water sources built in the early years, so relatively speaking, environmental protection has a large impact on duck removal capacity. The clearance of backward production capacity is expected to drive the price of duck products to rise, or exceed expectations. 2. The price of duck meat has risen by nearly 30% (9300 yuan/ton) in the past two months, and it is expected that it will continue to rise in the future. According to grassroots research, it is estimated that the company will produce 150 million duck seedlings per year, slaughter about 8 million, 40 million chicken seedlings, and a slaughter volume of about 14 million. The company uses two farming models: self-cultivation and “company+farmer”. Among them, the former accounts for a relatively large share; the latter, under the tightening of environmental protection, compliance with environmental protection standards is a basic condition for cooperation with farmers. In the first half of 2017, due to low prices in the poultry chain (according to wind, in the first half of 2017, the average price of chicken seedlings in Nanyang, Henan was 1.2 yuan/feather, a year-on-year decrease of 47%; the average price of chicken seedlings in the main production areas was 0.92 yuan/feather, a year-on-year decrease of 74%), the company's net profit declined in the first half of the year. According to research and estimates, it is estimated that in the first half of the year, an average loss of 1 yuan per duck seedling will be 1 yuan, and the profit of meat duck breeding will be balanced between profit and loss for a single bird. Currently, it is estimated that the profit of meat duck breeding is 4-5 yuan/feather. We expect that the withdrawal of free-range farmers will continue to drive the price of duck products to continue to rise rapidly, and the high profit point for meat ducks alone is expected to reach 7-8 yuan. 3. The company's strategic positioning is to become the “world duck king”. According to grassroots research, the company will focus on developing the duck industry chain in the future, and it is expected that in the future, it will gradually shrink the broiler business and focus on the duck chain. First, the company is determined to develop the duck industry, expand production capacity, and continue to invest in upstream and downstream enterprises in the duck industry. Revenue increased by nearly 57% in the first half of the year; second, the company continued to increase investment in projects under construction in the first half of the year, adding 6 million commercial duck farms; third, the company slaughters 14 million broilers a year, and future production capacity is expected to shift to meat duck production. We expect that in the next 3-5 years, the company's 150 million duck seedlings will be produced throughout the industry chain; fourth, the company will actively explore the value of duck by-products and extend the industrial chain, and its products such as duck feather and duck blood will gradually gain market recognition. 4. National reform is on the rise, boosting corporate MBO. It is expected that this year's state-owned enterprise reform will flourish, which is expected to become a catalyst for the implementation of corporate MBO. Investment advice: We estimate that the company's net profit for the year 17/18 will be 201/304 million, EPS will be 0.38/0.57 yuan, corresponding PE will be 33 times /22 times, respectively, and the target price will be 18 yuan, giving it a “buy” investment rating.