Disappointing FY12F. Our recent chat with management points to a weaker-than-expected sales recovery in 2H12F. Key highlights: i) FY12F will unsurprisingly be loss-making on an ex-government grant basis; ii) its slaughtering volume rose by double digits YoY in September and November, attributable to a low base and seasonality, in our view; iii) margins at its upstream unit will remain as low as in 1H12, while its downstream unit saw a HoH margin improvement; iv) government grants in 2H12 will be less generous than expected. 2013 outlook. Management is targeting volume growth of 20% YoY for both its upstream slaughtering and downstream processing, in line with our expectations. We expect its blended utilisation rates to stay low going forward in view of its planned capacity expansion. With 100k tonnes of new downstream capacity in Nanjing coming onstream in mid-2013, we anticipate pricing and margin pressure amid intense competition. Hence, we project that Yurun’s blended margins will only recover to 5.4%/6.1% in FY12/13F against the low to mid-teen margins of its pre-scandal years. We believe a flat GPMs HoH in 2H12 at its upstream unit will be a testament to the fact that Yurun has yet to restore its bargaining power among customers. Still loss-making in FY13F. We project that Yurun will post a core net loss of HKD1,343m/172m in FY12/13F, 40%/4% below street estimates. Overall, While we believe the government’s five-year policy to consolidate the PRC slaughtering sector bodes well for Yurun’s long-term growth, near-term industry oversupply prospect will cap its utilisation and result in low returns, in our view. We forecast a core ROE of 3.2% in FY14F. Maintain SELL. Overall, we maintain our forecast for FY12-14F intact. We also slightly upward adjust our target price by 4% to HKD4.8 as we now peg our price target to a 0.53X PBR(low-end of its historical forward PBR) and roll over our valuation basis to FY14F. Key risks are: i) a greater-than-expected rally in hog prices in FY13F may lead to an unexpected margin squeeze; ii) intensifying market share wars; and iii) food quality issues.