Incidents:

The company released its 2018 annual report, achieving revenue of 1.15 billion yuan, a decrease of 4.81% over the previous year; the net profit of the mother was 62,036,500 yuan, an increase of 15.89% over the previous year. The company's performance fell short of expectations due to a decrease in sea cucumber catches. With the rise in sea cucumber prices in 2019, the company's performance is expected to improve.

Comment: The recovery in sea cucumber prices is already reflected. The decline in fishing volume affected the company's performance growth rate in 2018 when the company caught 2892.67 tons of fresh sea cucumbers, down 27.22% from the previous year. Among them: 1644.50 tons were used for marine workers and 1248.17 tons were sold abroad. The decline in fishing volume was mainly due to higher processor inventories and lower sea cucumber costs in the first half of the year, while in the second half of the year, although sea cucumber prices increased, there was not much trading volume, so fishing volume declined. In terms of price, the average annual foreign sales price of the company's fresh sea cucumber was 129.82 yuan/kg (the average price in the first half of the year was 105.89 yuan/kg), an increase of 13.20% over the previous year, and there is a clear trend of price recovery.

The industry is picking up, and the company's performance is about to improve

Supply has shrunk sharply, and the sea cucumber industry will usher in an upward cycle of two to three years. The company's sea cucumber farming production, scale and strength are among the highest in the industry, and will clearly benefit from the recovery of the industry:

1) Price side: High temperatures in the summer of '18 caused widespread death of domestic sea cucumbers, and the industry's production capacity was drastically reduced. The price of sea cucumber has clearly rebounded since the fourth quarter of '18, and continued to be strong in '19. By late April, sea cucumber fishing in Fujian was nearing completion. The average price was 160 to 170 yuan/kg (90 to 100 yuan/kg in the same period last year), which was basically the same price as autumn fishing in Shandong, exceeding expectations. We expect the average price of sea cucumber in 2019 to be 160-180 yuan/kg, an increase of 30%-40% over the previous year.

2) In terms of production: The company's sea cucumber seedlings are all self-sufficient, and the high temperatures in the summer of '18 had little impact on the company. Currently, the company has a cultivation area of 50,000 mu of sea cucumber in the weir, and the theoretical output can reach 5,000 tons/year.

As the industry picks up, the company's sea cucumber catch is expected to rise.

Profit Forecasts and Investment Ratings:

Downstream inventory removal fell short of expectations, and the company lowered the company's 19-20 sea cucumber catch forecast to 3,500 tons and 3,800 tons (lower than the previous forecast of 4,000 tons, but higher than the 2018 catch). At the same time, the company's 19-20 EPS forecast was lowered to 0.13 yuan and 0.16 yuan, and the new 21-year EPS forecast was lowered to 0.19 yuan.

There is a clear trend of recovery in the industry. Performance improvements can be expected, the company is optimistic, and the “buy” rating is maintained.

Risk warning: The price falls short of the expected risk, and the amount of sea cucumber caught falls short of the expected risk.