What happened: the company recently released its three-quarter report of 2018. In the first three quarters, the company realized revenue of 1.414 billion yuan, an increase of 12.12% over the same period last year, a profit of 345 million yuan for its main business, an increase of 4.35% over the same period last year, and a net profit of 62.66 million yuan belonging to the parent company, an increase of 1.36% over the same period last year. The company realized 3 cents of EPS in the first three quarters.

Comments:

Revenue, profit, deducting non-profit growth and operating net cash are negative: the company's profit and loss after deducting non-recurring profits and losses in the first three quarters was 57.33 million yuan, down 3.01% from the same period last year. Net cash generated by the company's operating activities-48.11 million yuan, compared with 50.85 million yuan in the same period last year. This is due to the increase of accounts receivable due to the increased competition in the agricultural products market of some branches after the balance sheet date and the change of sales policy.

Increase in the rate of financial expenses and increase in the level of debt: in addition to the increase in the rate of financial expenses, the rate of management and sales expenses is similar to that of last year. In the first three quarters of this year, the company's financial expense rate was 6.6%, compared with 5.2% at the end of last year, and the financial expense rate has continued to increase since 2013. Financial pressure is worth paying attention to. At present, the company's debt ratio is 41.6%, down from 43% in the medium term, but still slightly higher than at the beginning of the year and the first quarter.

Decreased operating efficiency and improved solvency: affected by market competition, the company's credit policy led to a decline in accounts receivable turnover to 1.3 from 2.57 at the end of last year. Inventory turnover also fell from 1.89 to 1.22. Nevertheless, both the liquidity ratio and the quick ratio improved, to 2.06 and 1.56 respectively, compared with 1.82 and 1.33 at the end of last year. ROIC also fell to 0.84% from 1.42% at the end of last year, indicating increased pressure on the company's return on capital.

The company's future performance is flexible. Although the company has encountered a lot of difficulties in recent years and is now under the pressure of market competition, we judge that the company's layout in hops, fruits, alfalfa and potatoes will blossom and bear fruit in the next few years. coupled with the large price fluctuations of these cash crops, there is great downward pressure, but with the continuous optimization of the company's industrial structure and the improvement of the industrial level, the internal management continues to improve and the market construction speeds up. And the improvement of anti-risk ability, especially in the context of public inflation, both performance improvement and market opportunities will be greatly improved.

Earnings forecast and investment rating: we expect the company's earnings per share from 2018 to 2020 to be 0.11, 0.12, 0.13 yuan respectively. It is predicted that the PE in the next three years will be multiple of that in 24-22-21. Considering that the company has a good industrial foundation, reasonable layout, broad sales prospects and great potential. We maintain our "overweight" rating on the company.

Risk factors: weather disasters, adverse changes in relevant national agricultural policies, unfavorable consumption environment, intensified market competition, sluggish prices of agricultural products, and so on.