Event: recently, Haodang released a report on the third quarter of 2018. In the first three quarters of 2018, the company realized operating income of 904 million yuan, an increase of 14.75% over the same period last year. The net profit belonging to shareholders of listed companies was 51.5906 million yuan, up 16.08% over the same period last year. Net profit after deducting non-return to the mother was 41.0587 million yuan, an increase of 58.22% over the same period last year. Basic earnings per share is 0.04 yuan per share.

Comments:

Q3 revenue increased significantly, and the expense rate decreased significantly during the period. The company's performance improved significantly in the third quarter, mainly reflected in the increase in sales revenue and the effective reduction of expenses during the period. The company's Q3 achieved a total operating income of 367 million yuan, an increase of 78.96% over the same period last year. The proportion of revenue from sales expenses, administrative expenses and financial expenses was 6.72%, 4.30% and 9.94% respectively, which decreased by 10.71pct, 5.43 pct and 6.18 pct respectively compared with the same period last year. This is mainly due to the fact that the business expenses paid by Rongcheng Haodang Ocean Health Industry Co., Ltd. during the reporting period decreased by 88.9046 million yuan compared with the same period due to the adjustment of business model. The sharp reduction of expenses during the period shows that the company has achieved remarkable results in reducing fees and increasing efficiency. Under the influence of substantial revenue growth and effective cost control, the company's Q3 achieved a net profit of 19.0242 million yuan in a single quarter, an increase of 18.318 million yuan over the same period last year, 26 times higher than the same period last year, close to the performance of the spring ginseng sales season in the second quarter.

Q3 revenue increase may be caused by the increase in sales of semi-finished sea cucumbers. Due to the special growth law of sea cucumber summer hibernation and hibernation, sea cucumber fishing and sales are concentrated in the second and fourth quarters of each year, so the company shows obvious seasonal characteristics. In terms of revenue, we can obviously see that the company's revenue in the second and fourth quarters was higher than that in the first and third quarters, and because the scale of autumn ginseng was larger than that of spring ginseng, the revenue in the fourth quarter was slightly higher than that in the second quarter. In terms of gross profit margin, affected by the structural characteristics of various business sectors, the company's gross profit margin does not show obvious seasonal periodic changes. In addition, the revenue performance in the third quarter of this year is relatively abnormal, which is good against the trend, which is mainly related to the changes in the sea cucumber market this year. The reduction in production of sea cucumbers in Liaoning this summer has led to a tightening of industry supply. In the third quarter, driven by the replenishment demand of downstream sea cucumber products processing enterprises, we judge that the sales of semi-finished sea cucumbers in the third quarter of the company (mainly for the early part of the domestic sales of fresh sea cucumbers after the initial processing of sea cucumbers) sales have significantly improved.

The industry takes the initiative to reduce production in Liaoning Province, and the price boom is expected to continue until 2019. By the end of the third quarter, the price of sea cucumbers had risen to 160 yuan / kg, a faster-than-expected growth rate. The sea cucumber aquaculture industry in Liaoning has suffered serious losses this time, accounting for 92% of the total output of sea cucumber culture in Liaoning last year, and 33% of the total output of sea cucumber culture in China last year. We believe that the high temperature disaster in Liaoning, the main producing area of sea cucumber culture, has a great impact on the industrial structure, and the supply and demand of the industry is further tightened, which is good for the price to go up. From the perspective of the cycle of the year, although the participation price increased significantly in the third quarter affected by the production reduction of sea cucumbers in Liaoning, the impact of production reduction will mainly appear in the fourth quarter, mainly due to the hibernation and summer hibernation of sea cucumbers in the first and third quarters. During this period, market supply and demand are relatively weak, supply-side sea cucumbers are not listed in centralized fishing, and demand-side consumption also pursues sea cucumbers freshly caught in the listing season. Generally speaking, in the fourth quarter after Frosts Descent, when autumn ginseng is fished on a large scale, the industry supply side's active capacity removal and the impact of Liaoshen high temperature passive production reduction will also be fully reflected in the fourth quarter. We are optimistic about the new round of price rise in the fourth quarter. The high point of the participation price is expected to reach 180,200 yuan / kg. From the point of view of the sustainability of the boom, the loss of sea cucumbers in Liaoning is the sea cucumbers in the whole growth stage. According to the loss of sea cucumber two-year growth cycle (conservative), one-year-old growth period and two-year-old growth period weight ratio at 4:6, the impact of this production reduction on the output of sea cucumbers this year is 19.8% (33%). Considering the decline in the growth rate of the national sea cucumber production, it is assumed that the national sea cucumber production remains the same. The impact of this reduction on the output of sea cucumbers next year will also account for about 19.8%. Overall, this reduction in the production of sea cucumbers in Liaoning will cause a gap of about 19.8% this year and next, and we judge that the current round of prosperity is expected to last until 19 years. We believe that the company's aquaculture business will fully benefit from the upswing of the industry.

Earnings forecast and rating: taking into account the industry to maintain an upward trend, we expect the company's diluted earnings per share in 18-20 to be 0.06 yuan, 0.08 yuan and 0.11 yuan respectively. Maintain the "overweight" rating of the company.

Risk factors: extreme weather risk, product price fluctuation risk, scale expansion is not as expected, channel expansion is not as expected, policy change risk and so on.