Matters: Kim Jong-dae (002470) released the 2018 semi-annual report on August 22, 2018. During the reporting period, the company achieved operating income of 13.770 billion yuan, +10.38% year-on-year, and net profit of 838 million yuan, +5.44% year-on-year. Our comments on this are as follows: Comment: Industry prosperity is sluggish, and gross sales margin is declining. In 18Q2, the company achieved operating income of 6.896 billion yuan, +1.99% year-on-year; net profit of 308 million yuan, -18.88% year-on-year. During the reporting period, the prices of upstream raw materials such as urea, monoammonium phosphate, and potassium chloride rose by an average of about 15% year on year. Due to the slump in industry prosperity, the gross margin of the company's high-priced products such as controlled release compound fertilizer and nitro compound fertilizer declined markedly, with a year-on-year decrease of 3.23 and 2.02pct, respectively; the gross margin of ordinary compound fertilizer fell slightly by 0.2 pct. The company expects net profit of 908 to 1,180 billion yuan for the third quarter, an increase of 0-30% over the previous year; based on this estimate, net profit for 18Q3 is expected to be 0.7 to 3.4 billion yuan, -38% to +202% over the same period last year. The “Jinfeng Commune” is developing steadily, and long-term expansion can be expected. The “Jinfeng Commune” agricultural service platform has expanded rapidly since its establishment in 2017. Up to now, the company has built 100 county-level Jinfeng communes, an increase of 25 over the first quarter. In 2018/2019, the development goals of the Jinfeng Commune are: 150 and 300, respectively. We believe that with the support of the rural revitalization policy, Jinfeng Commune relies on the company's high-quality resources in terms of products, channels, capital, and talents to achieve long-term development goals and can be expected to expand profits. Extend the industrial chain layout and integrate agricultural service business. The asset that the company purchased was 66.67% of the shares of the Agricultural Investment Company completed the transfer on August 3. Currently, the parent company holds 100% of the shares in the Agricultural Investment Company. The wholly-owned subsidiary of the Agricultural Investment Company is an agricultural commercial company (engaged in agricultural sales business), which indirectly holds 88.89% of the shares of Germany's Kim Jeong-dae (engaged in horticultural fertilizer and specialty fertilizer sales business). The acquisition of agricultural investment companies drives the parent company's industrial chain to horticultural products and expands the company's marketing channels in Europe, Asia Pacific and other regions; at the same time, it integrates agricultural distribution channel resources and agricultural technology service experience of agricultural commercial companies to promote the transformation of the company from an agricultural producer to a comprehensive agricultural service provider. Risk factors: 1) risk of falling agricultural product prices; 2) risk of raw material price fluctuations; 3) policy risk; 4) risk of business promotion falling short of expectations. Maintain a “buy” rating. The company was affected by the downturn in the industry and price increases on the cost side in the short term, and the gross margin of its main products declined; however, with the recovery in future market demand and the profit growth brought about by the company's transformation into an agricultural service provider, our long-term optimism about the company has not changed. We maintain the company's 2018-2020 EPS forecast at 0.35/0.48/0.63 yuan, maintain the target price at 11.5 yuan, and maintain the “buy” rating.