Shenyin Wanguo released an investment research report, rating: overweight.
Investment Points:
In the process of food safety moving towards market-oriented pricing, vertically integrated manufacturers of the whole industry chain will be able to obtain the largest food safety premium. With income growth and consumption upgrading, residents have the ability and willingness to pay a higher food safety premium; upstream enterprises with food safety-related products can extend to midstream processing and downstream channels through vertical integration to create a whole industrial chain. We believe that the first main line of investment in food safety is vertical integration to open up the food safety supply chain from the place of origin to the terminal.
Dahu Co., Ltd. is the largest freshwater aquatic products aquaculture enterprise in China, and its core competitiveness is second to none. Unlike marine waters, which are susceptible to nuclear radiation and crude oil leakage pollution, the company has 1.7 million mu of freshwater lake resources, and the natural free-range breeding mode of the Great Lake ensures that the quality of aquatic products is safe and controllable. The company adopts the cooperative breeding mode of "company + base + farmer", with outstanding technical ability in research and development of seedling breeding and rich experience in lake surface management. Recently, the price of aquatic products has risen sharply, comparable to pork, which has greatly increased the average sales price and improved profitability; and the initial investment in lake resources and aquatic products, especially the cold-water fish in Xinjiang's Wulungu Lake, will concentrate on contributing to production and improving the structure of aquatic products in the next few years.
The business model has undergone a major transformation, and the brand fish + whole industry chain has obtained a food safety premium. With the completion of the new board of directors and management, the company is implementing the business model transformation of brand fish + whole industry chain. In the future, the proportion of high-value-added products such as high-end fish, brand fish, processed fish, and fish food will continue to increase, and safe and secure big lake fish will go from the lake to the side of consumers, and vertical integration will obtain a higher food safety premium.
The private placement will solve the bottleneck of funds restricting the transformation and development of the company. The company announced that it intends to issue 35 million to 50 million shares at a private placement of 7.21 yuan per share, raising 250 million to 360 million yuan; the major shareholder Hongxin Holdings will subscribe in full cash, demonstrating its confidence and full support for the company's transformation and development. We believe that with the construction of 20,000 tons of aquatic products deep processing projects in the midstream, 6 major cold chain logistics bases, downstream marketing channels and brand publicity, the targeted issuance will lay the cornerstone for the transformation of "brand fish + whole industry chain".
For the first time, an "overweight" rating was given. Excluding non-recurring gains and losses, we forecast eps=0.12/0.23/0.39 yuan for 2011-2013, with explosive profitability growth. The company will transform from a traditional aquatic product breeding enterprise with low degree of differentiation and low profitability to a freshwater aquatic product brand leader with food safety premium and resource scarcity, and vertical integration of the whole industry chain. We are optimistic about the successful transformation of the company's business model in the future, which will bring about high growth and high flexibility of performance reversal, and give "overweight" rating for the first time.