Event: Black Sesame disclosed its 2016 three-quarter report. As of the third quarter of 2016, it had achieved revenue of 1,176 billion yuan, +13.96% year-on-year, and net profit of 60.47 million yuan, or -14.34% year-on-year. Among them, Q3 revenue was 444 million yuan, +38.84% year-on-year, and net profit of 39.15 million yuan, +29.03% year-on-year. Key investment points Early production capacity and marketing investments came into effect, and the third quarter results improved dramatically. Q3 achieved revenue of 1,176 billion yuan in the first three quarters of 2016, an increase of 13.96% over the previous year, and an increase of 8.3 pct over the same period last year. In the first half of the year, Jiangxi sesame milk production capacity was put in place, terminal model market construction was implemented, selenium-enriched food platforms were established, and marketing of new black milk products was strong. Early investment on the right track led to a sharp increase of 38.84% in the company's Q3 revenue over the same period last year, with a significant improvement over the previous year. The second half of the year is the company's peak sales season. The company may launch a new black sesame+honey product in Q4, which is expected to boost annual performance. Net profit was dragged down by a decrease in non-operating net income, but actual operating efficiency improved. The company's gross margin increased by 1.8pct to 30.57%. The sales/management/finance expense ratio was -0.29pct/-0.92pct/+1.77pct, respectively. The overall cost ratio increased. Among them, the marginal efficiency of sales and management investment increased. The increase in financial expenses was mainly due to the increase in loans due to capital requirements for the acquisition of shares in Guangxi Rongzhou Logistics Industrial Park. In addition, the decrease in land revenue from Rongzhou Logistics and the increase in donations in the current period led to a decrease in net non-operating income of 18.35 million, exceeding the reduction in asset impairment losses of 10.18 million, causing net interest rates to fall by 1.3 pct to 5.51%. Net profit for the current period was 60.47 million yuan, a year-on-year decrease of 14.34%, but after deducting an increase of 2.97%, actual operating efficiency tended to improve. The production capacity layout continues to be optimized, products are expected to gain strength in multiple lines, and expectations for extended mergers and acquisitions are strong. Currently, the sesame milk base in Nanchang, Jiangxi has been put into operation, while the process equipment adjustments in Chuzhou, Anhui are expected to be completed by the end of September next year. The acquisition of the Jinghe Rice Industry will become a platform for the company to enter selenium-enriched food, and the new black milk product will further target the middle and high-end market by the Shenzhen Gold Medal News Program. Furthermore, the company completed the grant of equity incentives reserved for 750,000 shares this year. According to unlocking conditions, it is necessary to achieve 43.5% growth in the second half of '16, or achieve the goal through extended mergers and acquisitions. Profit forecast and investment recommendations: The company's revenue is expected to be 2,311 billion, 2,852 billion, and 3,511 billion yuan respectively in 16-18, with EPS of 0.30 yuan (+27.5%), 0.37 yuan (+23.4%), and 0.45 yuan (+21.1%), and the current stock price corresponding to PE in 16 and 17 is 25.9x and 21.0x, respectively. The company's initial investment in production capacity and marketing resources has begun to gain strength, product line expansion is dynamic, and fundamentals are continuously improving. The goals for the whole year are expected to be achieved, and subsequent growth is worth looking forward to. Maintain the “Overweight” rating. Risk warning: fierce market competition, food safety issues