Summary of the report

1. The development of the company's main business is stable, and the policy change of supporting the city brings potential benefits to the grain industry. In terms of main business, the gross profit margin of grain processing business remained stable; sales of small packaged rice and edible oil increased steadily; and the dairy industry actively opened up new channels from single student milk to compound channels. In the past, the purchase policy of supporting the market led to grain and oil processing enterprises buying raw materials at high prices upstream and participating in market competition at low prices downstream, making it difficult to survive. In recent years, the grain support market acquisition policy reform is expected to strengthen, bringing potential benefits for downstream grain processing enterprises, the company as an industry leader is expected to benefit significantly.

2. Four highlights of future development:

1) the divestiture of non-performing assets has been completed, and the performance has been reduced and the losses have been reduced. Jinjian Pharmaceutical, as a subsidiary with the largest loss in the past, has high debts. On March 30, 2019, the company officially sold a 100% stake in Jinjian Pharmaceutical. The successful divestiture is expected to achieve performance reduction and focus on the main grain and oil industries.

2) the new official takes office and the mechanism is reformed. The new chairman of the company proposed internal reform at the beginning of taking office, using market-oriented means to innovate the operation and management mechanism. By carrying out internal reforms in many aspects, such as staff incentives, internal process streamlining, business cost reduction and efficiency, the management expense rate of 2019Q1 Company has been reduced to the lowest in 5 years, and the reform has been fruitful.

3) the company will benefit from reviving Xiangmi. In order to revive the prosperity of the "Changsha rice market" in Hunan Province, the quality of Hunan rice was promoted and the popularity of Hunan rice was improved from many aspects, such as breeding of improved varieties, large-scale planting, support of large enterprises, brand building and so on. As the only listed company of Hunan Grain Group, the company has famous brands such as "Jinxia" and "Jinjian", which will directly benefit from the project of "revitalizing Xiangmi".

4) cut into the new retail and broaden the sales channels. In April 2019, the company launched a cooperation with Hunan local e-commerce prosperous selection, this cooperation can give full play to the company's advantages in grain and oil product resources, broaden the company's sales channels, and inject new impetus into the company's development.

Profit forecast

The loss of Jinjian Pharmaceutical in 2016-2018 dragged down its net profit of about 10 million. In March 2019, the 100% equity transfer of Jinjian Pharmaceutical brought 55.03 million of the company's investment income in 2019 and reduced its loss by about 10 million in 2019. In addition, the transferee of the equity transfer will undertake the debt of 299 million yuan owed by Jinjian Pharmaceutical to the parent company, and will have to repay the company's debt of not less than 257 million yuan in the first year after the transfer. After paying off the debt, the transferee will bring a cash increase of not less than 257 million to the parent company, which is expected to bring about 10 million interest income to the company every year. The combination of the above three aspects is expected to significantly increase the company's net profit in the next three years. At the same time, based on the improvement of the company's management efficiency, the entry into new retail areas, and the benefit of the Hunan Provincial "Revitalization of Xiangmi" project, we expect the company's 2019 / 2020 / 2021 net profit to be 85 million / 42 million / 49 million.

Risk hint

1. Macro environmental risk. The company's main grain and oil business is greatly affected by the macro environment, such as policy adjustment, tax rate and exchange rate changes, and the relationship between supply and demand. The adjustment and changes of the relevant macro environment will have a significant impact on the company's product profit space, and there are many unpredictable factors.

two。 Market competition risk. With the acceleration of the process of agricultural supply-side structural reform and the strengthening of merger and integration in the industry, the leaders of related industries speed up the market layout by virtue of abundant funds, resources, brands and other advantages, and the market competition faced by the company is more fierce.

3. Quality and safety risk. Due to the wide range of grain and oil industry and the long industrial chain, there are many uncontrollable factors, which may have a significant impact on the company.