Event: The company released its 2018 annual report and achieved operating income of 2,801 billion yuan, a year-on-year decrease of 8.52%; net profit of -287 million, a year-on-year decrease of 524.46%. The slump in pig farming in 2018 dragged down overall performance. In addition, the company announced its first-quarter results forecast. Net profit is expected to be a loss of 9 to 13 million yuan. The loss is mainly due to the fact that most affected areas in the first quarter have not yet been unblocked, and pig transfers are still heavily restricted. As all affected areas in 21 provinces were unblocked at the end of March, pig transfers across the country have improved markedly. Combined with the upward trend in the pig cycle, it is expected that the company's performance will improve one after another. Comment: 1) The volume and price of the pig breeding business have all declined. Pig prices were low in the first half of 2018, and African swine fever broke out in the second half of the year. Affected by this, the company's breeding business suffered serious losses. In 2018, the company's pig sales achieved revenue of 348 million yuan, a year-on-year decrease of 37.23%; realized net profit of 124 million yuan, a year-on-year decrease of 233.28%. In terms of volume, the company has sold a total of 348,600 pigs (374,800 heads in '17). In particular, due to the blocking of transfers of breeding pigs across provinces, the company's pig breeding sales fell sharply by 53.28% to 512,000 heads. Sales of piglets were stable, while commercial pigs maintained an upward trend. 2) The feed business is developing steadily. In 2018, the company sold 7692,000 tons of feed (including 105,500 tons of domestic sales), which is basically the same as in 2017. However, due to rising prices of raw materials such as corn and soybeans, the gross margin of the feed business fell 1.25 percentage points to 11.77%. 3) Impairment of goodwill affects profit. In 2018, the company proposed a total of 132 million yuan of goodwill impairment preparations for Wuhan Tianzhong, Fujian Yichun, and Yinghua News. With the completion of environmentally friendly demolition and transformation and the establishment of a reversal of the pig cycle, etc., it is expected that the operations of these companies will improve markedly, and there is very little risk of impairment of goodwill once again. A cycle reversal was established, and African swine fever with the same increase in volume and profit contributed to a significant reduction in the production capacity of breeding sows. According to estimates of the growth cycle, its impact will begin to be reflected in the second half of '19. We expect pig prices to begin rising rapidly by the end of the second quarter. Although the company's performance in the first quarter was still losing money, it is expected that the second half of the year will begin to improve markedly, and 2020 will be profitable significantly. The number of listings is growing rapidly. The company combines internal and external efforts to expand pig production capacity: on the one hand, Tieli's ecological pig breeding industry project is expected to achieve full production in 2020. On the other hand, there has been a steady increase in the number of participating companies such as Xinda Animal Husbandry and Jiahe Farming and Animal Husbandry. We expect the company to release 660,000 shares and 1.21 million shares of total equity in 19-20 based on the shareholding ratio, respectively. Rapid growth is compounded by rising pig prices, and the company's performance is very flexible. Continuing to be optimistic about the company and maintaining the “buy” rating African swine fever not only pushes the industry to remove production capacity, but also makes it more difficult to prevent the epidemic. Currently, the company has adjusted its business plan to respond positively to the impact of African swine fever. This move can reduce the risk of the company's pigs being infected with the epidemic, but it will also increase breeding costs. The company's pig profit level may be lower than our previous expectations. Therefore, we lowered the company's profit forecast for 19-20, and added the forecast for the year 21 at the same time. We expect the company's EPS for 19-20 to be 0.39 yuan, 1.80 yuan, and 1.98 yuan, respectively. The number of listings has increased rapidly, and the superposition cycle is rising. We continue to be optimistic about the company and maintain its “buy” rating. Risk warning: The release of production capacity falls short of expectations, product prices fall short of expectations, and the risk of infection with the epidemic.