Tianyun International (672) uses natural fruit as raw materials to produce additive-free and high-quality processed fruit products. The Group is actively expanding the sales share of its own brands and expects 2018 to become the main source of revenue. This will help strengthen product differentiation, increase customer stickiness, and support higher valuations. Furthermore, with the increase in processed fruit production capacity and the potential acquisition of other processed fruit factories in the second half of the year, the Group's sales volume is expected to increase, driving profit growth. First purchase rating, target price 1.68 yuan.

Expand the share of your own brands and increase valuations. The company strives to balance the diversity and specificity of the needs of different customer groups by enriching the variety of processed fruit varieties, developing new products, and using different packaging methods; it has also introduced online sales models such as WeChat and Tmall to broaden sales channels; at the same time, it is increasing the number of distributors, adopting a new regulatory model, and taking a multi-pronged approach to increase the market share of its own brands and expand their sales and share. Currently, the company's valuation is at a low level due to its positioning as a food foundry company. The development of its own brand can help the company change its image, raise the valuation level, and support long-term development.

Expansion of production capacity supports sales. The company has improved the degree of automation and production efficiency in the existing workshop to achieve fully automated production in multiple fruit processing processes. At the same time, it is also actively seeking land resources, promoting workshop expansion, and increasing production lines. The company currently has a total production capacity of about 84,000 tons, and the annual capacity utilization rate can reach 85% to 90%. Under the steady implementation of production line expansion and mergers and acquisitions plans, the total production capacity is expected to increase by 10,000 tons or 12% to about 94,000 tons in 2018.

M&A plans drive revenue growth. In order to further expand production capacity, support sales, and help brand marketing, the company plans to add tropical and subtropical fruit varieties to existing processed varieties, mainly temperate fruits. To this end, the company will complete a processing plant merger and acquisition project within this year. The acquisition target is a processing plant with net assets of 50 million to 100 million yuan and specializing in tropical and/or subtropical fruit processing. The impact of the acquisition is expected to be reflected in the company's financial data starting in 2018. In addition, the company also plans to acquire a European food brand to help strengthen the brand awareness and image of the company's products in overseas markets, expand product sales channels, expand overseas market share, and achieve rapid and strong overseas market expansion. The acquisition plan is expected to be implemented in 2018.

Tianyun's valuation is slightly discounted compared to its juice brand peers. Based on the expected price-earnings ratio of 10 times in 2018, the target price is HK$1.68. I believe the discount will narrow as the share of its own brands increases. The first time a rating was given as a buy