The 1H18 performance was in line with expectations, and Jin Zhengda announced the 1H18 results: operating income of 13.77 billion yuan, up 10.4% year on year; net profit attributable to the parent company was 838 million yuan, up 5.4% year on year, corresponding to profit per share of 0.27 yuan, close to the lower limit of the performance forecast. Revenue increased 19% year over year after deducting trade in feedstock fertilisers. 2Q revenue was 6.9 billion yuan, up 2.0% year on year, and net profit was 308 million yuan, down 18.9% year on year. 2Q gross profit increased by 57 million yuan (+5.5%) to 1.09 billion yuan. The year-on-year decline in net profit was mainly due to a year-on-year increase in sales expenses of 141 million yuan. The company expects net profit of 908 to 1.18 billion yuan in the 1st to 3Q, an increase of 0% to 30% over the previous year. Development trend The income of ordinary compound fertilizer is growing rapidly, and the gross margin has basically remained stable. The average price of 1H2018's chlorine-based and sulfur-based compound fertilizers rose 2%/12% year on year, combined with an increase in sales volume. In the first half of the year, ordinary compound fertilizer revenue increased 31.8% year on year to 4.95 billion yuan. Due to rising prices of raw materials such as urea and phosphate fertilizer, the gross margin of ordinary compound fertilizer fell 0.2ppt to 18.2% year on year. Revenue from high-end fertilisers is growing, but profits are under pressure. The revenue of controlled release fertilizer, nitro fertilizer and water-soluble fertilizer of 1H2018 companies increased 15.2%/4.1%/5.6% year on year, respectively, to 41.73/4.43/274 billion yuan. Due to low agricultural product prices and sharp increases in raw material prices, the gross margin of controlled release fertilizer, nitro fertilizer and water-soluble fertilizer fell 3.2/2.0/1.7ppt to 9.9%/19%/28% year on year. Jinfeng Commune is making steady progress, which is expected to drive an increase in compound fertilizer sales. By pooling resources in the planting industry chain, Jinfeng Agricultural Service provides a full range of agricultural services such as soil improvement, full-process crop nutrition solutions, crop quality improvement, agricultural technology training and guidance, and land trusteeship for cultivated land in China. At present, Jinfeng Agricultural Service has set up nearly 100 county-level agricultural service agencies for the Jinfeng Commune in China, and has established in-depth cooperation with upstream seeds, pesticides, agricultural machinery, etc. as well as downstream agricultural product processing enterprises and agricultural product sales channels. Currently, Jinfeng Commune is still in the initial stage of laying out outlets and absorbing land. In the future, as the number of businesses developed by Jinfeng Commune increases, the driving effect on the company's compound fertilizer sales will gradually become apparent. Profit forecast The gross margin of compound fertilizer is under pressure due to the high price of simple fertilizer. We lowered our 2018/19 profit forecast 15%/9% to 0.32/0.43 yuan/share. Valuation and recommendations Currently, the company's stock price corresponds to the 2018/19 price-earnings ratio of 21/16x. Due to the downturn in the industry's valuation center and the decline in profit forecasts, we lowered the target price by 18% to 9 yuan. There is room for 30% increase from the current stock price. The target price corresponds to 2018/19 28/21x P/E, maintaining the recommendation. The price of risk-based fertilizer has risen sharply, and the price of agricultural products has declined.