Event: recently, Haodang released its 2018 semi-annual report that in the first half of 2018, the company realized operating income of 537 million yuan, down 7.83% from the same period last year. The net profit belonging to shareholders of listed companies was 32.2754 million yuan, down 26.21% from the same period last year. The net profit of returning to the mother after deduction was 25.2529 million yuan, down 10.67% from the same period last year. Basic earnings per share is 0.02 yuan per share.

Comments:

The decline in the company's performance compared with the same period last year is due to the decline in the comprehensive gross profit margin. The company's revenue fell 7.83% in the first half of the year compared with the same period last year, mainly due to the decline in the growth rate of aquaculture business and the decline in revenue from the processing business. On the one hand, the revenue of H1 fresh sea cucumbers increased slightly (+ 1.33%). On the other hand, the internal sales of H1 fishing sea cucumbers decreased by 38.76% compared with the same period last year, and the output of processed sea cucumbers Q1 decreased by 12.10%, 16.10% and 2.73% respectively. The company's first-half net profit fell 26.21% compared with the same period last year, mainly due to a sharp decline in the company's comprehensive gross profit margin (- 8.45pct), mainly caused by three aspects. First, the price of fresh sea cucumbers decreased compared with the same period last year. In the first half of the year, the market price of fresh sea cucumbers dropped somewhat after reaching a new high at the end of 17th. The trend of the company's external sales price of fresh sea cucumbers was basically the same as the market price. In the first half of the year, the average sales price of fresh sea cucumbers was 105.89 yuan / kg, down 5.96% from the same period last year. Second, the growth rate of fishing business affected by the transformation of fishing vessels may decline. In the first half of the year, Rongcheng, a subsidiary of the company's fishing plate, Rongcheng, Dongfang Fisheries Development Co., Ltd., and Fangchenggang Haodang Marine fishing Co., Ltd. invested in the transformation of fishing vessels, which may have a certain impact on the development of fishing business. the company's gross profit margin of fishing business in 2017 is 25.94%. Third, in the processing business, the frozen food processing business with low gross margin (2.99% gross margin in 2017) maintained growth, while the sea cucumber processed products business with high gross margin (17.93% gross margin in 2017) decreased significantly, resulting in a decline in gross margin in the processing sector. Q1 frozen food sales + 14.83%, sea cucumber processed products sales-16.10%. We believe that, as an integrated enterprise of sea cucumber breeding and processing, the structural adjustment of the external sales and internal processing of cultured sea cucumbers will change with the market. With the recovery of fresh sea cucumber prices in the second half of the year, the company's proportion of fresh sea cucumbers sales is expected to increase, driving the company's profits to improve.

Aquaculture business benefit from the upward price, external sales are expected to rise. In the first half of the year, the high temperature disaster occurred in Liaoning, the main producing area of sea cucumber culture, had a great impact on the industrial structure (the company is basically unaffected, the deepest water depth of the company cofferdam is 10-11 meters, the shallowest water depth is 5-6 meters, and the ability to resist high temperature is strong), and the supply and demand of the industry is further tightened. it's good for the price to go up. The participation price has entered the upstream channel since the spring ginseng fishing period in the second quarter. at present, under the circumstances that the supply and demand pattern of sea cucumbers has been continuously improved due to the obvious elimination of production capacity in the industry and the sharp decline in the output of Liaoning ginseng, the economic reversal of sea cucumbers has been further established. the recent growth rate of participation prices has exceeded our expectations, and the high price is expected to be revised upwards to 180-200 yuan / kg this year, with a corresponding price increase of 8.43% 20.48%. In terms of economic sustainability, the loss of sea cucumbers in Liaoning is the whole growth stage of sea cucumbers. According to the loss of two-year growth cycle (conservative), one-year-old growth period and two-year-old growth weight ratio at 4:6, the impact of this production reduction on the output of sea cucumbers this year is 19.8% (33% 60%). Considering the decline in the growth rate of national sea cucumber production, assuming that the national sea cucumber production remains unchanged. The impact of this reduction on the output of sea cucumbers next year will also account for about 19.8%. Overall, this reduction in the production of sea cucumbers in Liaoning will cause a gap of about 19.8% this year and next, and we judge that the current round of prosperity is expected to last until 19 years. We believe that the company's aquaculture business will fully benefit from the rising price boom, while we increase the company's expected share of fresh sea cucumber external sales to 72% and 70% in 2018-2019, and the company's external sea cucumber sales are expected to reach 2947.56 tons and 2951.66 tons respectively in 18-19.

The fishing business progressed steadily and continued to increase input during the reporting period. By the end of 2017, the company had built 44 vessels, including 19 light net fishing vessels, 16 trawlers and 1 large transport vessel, operating in the fishing grounds of the South China Sea, Yellow Sea, East China Sea and North Pacific Ocean, supporting the construction of a cold chain warehouse of 50,000 tons and an annual capacity of 50,000 tons of fishmeal, in addition, 8 squid fishing vessels were renovated in 2017, all of which went to sea in January and February 2018. In 2017, the company's fishing product volume reached 82.664 million tons, a sharp increase of 141.94% compared with the same period last year. The sales of fishing products of the company also increased by 32.01%. The company continued to increase investment in fishing business in the first half of the year. During the reporting period, its subsidiaries Rongcheng Haodang Offshore Fisheries Co., Ltd., and Fangchenggang Haodang Marine fishing Co., Ltd. invested 20.1928 million yuan, 23.826 million yuan and 6.1888 million yuan respectively in the transformation of squid fishing vessels. The company's fishing business is growing day by day, but it should be noted that there are many uncontrollable factors (such as fishing ground changes, marine weather changes, irregular transformation), which may lead to great fluctuations in fishing business performance.

Earnings forecast and rating: we expect diluted earnings per share for 18-20 years to be 0.04 yuan, 0.06 yuan and 0.09 yuan respectively. Maintain the "overweight" rating of the company.

Risk factors: extreme weather risk, product price fluctuation risk, scale expansion is not as expected, channel expansion is not as expected, policy change risk and so on.