Incident: The company and Minfeng Seed Co., Ltd. jointly set up a brand management company, Huayang E-commerce in Inner Mongolia. The company invested 49 million yuan, accounting for 49% of the total share capital. Supply chain+brand operation, the two sides complement each other's strengths to build a new brand. The joint venture implements an asset-light operating model. The company provides services such as brand creative planning, packaging design, marketing planning, new channel sales and brand operation, and Minfeng Seed Industry provides services such as raw materials procurement, production, processing and packaging, warehousing, logistics and after-sales services. The partners will fully combine the operational and marketing advantages of the Huayang brand with the supply chain advantages of Minfeng seed industry to jointly build a well-known health and leisure snack brand: (1) Focus on building online sales channels. It includes traditional e-commerce channels such as JD and Tmall and new e-commerce channels such as Douyin, Kuaishou, Station B, and Xiaohongshu. At the same time, it combines marketing/sales hotspots such as influencer marketing and content marketing to open up (2) continuous brand innovation to create brand value. The joint venture will continuously innovate product categories, product forms, and brand value in the snack food field. According to company research, the first batch of products such as fruit/nut oat chips, milky oat cups, and oat milk tea will be launched, and other categories of products will be developed later. (3) Make full use of new marketing/sales methods such as influencer marketing, short video marketing, and content marketing to achieve “integration of quality and efficiency”. The company is deepening the transformation of brand agency operations, and multi-category brands are promoting it together. The company has been experimenting with the Philips buyout sales model since 2015, and has accumulated experience in e-commerce operations. In 2020, the company will deepen its service content and operation capabilities and connect with more brands/products based on this. Cooperation categories include beauty, fashion clothing, snack food, health care, etc. The company has upstream brand owner resources and agency operation capabilities, and has obvious advantages and synergies in entering new business directions. One hundred medium and large brand owners are a natural customer pool for new businesses. In 2020, the company is expected to expand at least 10 brand/product agency operations. The gross margin level of the company's traditional business is only 10%, and the gross margin of brand agency operations is expected to increase to 20%-30% (the profit margin of the joint venture agency operation model is larger), which can effectively increase the company's ROE level. This joint venture with the product side to build a brand is the first step in exploring the joint venture agency operation model, which can be replicated on a large scale to small and medium-sized brand customers that are subsequently connected and new overseas brands developing the Chinese market. The company's future brand agency operations will focus on three directions, all with replicability: (1) big brand customers: help them open up new channels such as Douyin, Kuaishou, Station B, and Xiaohongshu to provide new channel marketing services and agency operation services; (2) small and medium-sized brand customers/new overseas brands: establish joint ventures, combine content capabilities, marketing capabilities, and operation capabilities to shape brand product lines and develop new and old channels; (3) Government customers: Facilitate agricultural product agency operations (mainly To B). We believe that marketing companies have the advantages and innate conditions of in-depth layout of traditional business and brand agency operations: (1) Brand owners are rich in resources and operate natural customer pools on behalf of brands. The increase in performance at the beginning of the layout mainly came from the rapid increase in the number of connected brands (volume increase), and only then did the increase in performance shift to refined operating capacity (increase in “ARPU” value). The marketing company's upstream brand owners are rich in resources, and there is plenty of room for careful selection in the early stages of transformation, so priority can be given to developing suitable brands and suitable business models. (2) The degree of coincidence between business functions and e-commerce agency operations is high. There are five major functions of e-commerce agency operations: including IT/data analysis, e-commerce operations, customer service, warehousing logistics, and marketing. Among them, the two major functions of data analysis (user tag system, effect monitoring system, DMP) and marketing are the core functions of marketing companies. Customer service and warehousing logistics can be outsourced, and e-commerce operation capabilities are the key to the real transformation and success of marketing companies. In terms of data analysis, the core competency of marketing companies is off-site traffic data, and the core competency of TP companies is in-site traffic data. Investment suggestions: The company deepens the layout of brand agency operations based on its existing experience in e-commerce operations. In the future, the company will focus on exploring new operating models with large-scale replication capabilities, including new channel agency operation models, joint venture agency operation models, and government agency operation models. The company's high performance flexibility is expected to be mainly due to brand agency operations and is expected to be fully released in Q2 2020. Given the inflection point in the industry, the company has active transformation demands, and is expected to gain both the company's alpha and industry beta under the changing 5G traffic situation. We expect the company's net profit in 2019-2021 to be 200 million yuan, 350 million yuan, and 500 million yuan, corresponding EPS of 0.87 yuan, 1.51 yuan, and 2.16 yuan, giving it 25 times PE in 2020. The target price is 37.75 yuan, giving it a “buy-A” rating. Risk warning: Risks such as downstream competition intensity falling short of expectations, new customer development progress falling short of expectations, brand agency business not progressing as expected, and sales budget expansion falling short of expectations.