Agricultural reclamation reform targets continue to receive recommendations, with focus on the "three carriages" of the agricultural reclamation system

Continue to recommend agricultural reclamation reform, with focus on the agricultural reclamation system“three carriages”: firmly recommend Beidahuang, actively recommend Nongfa Seed Industry and Yasheng Group.

Our Essence Agriculture team adheres to the investment strategy of uncovering bull stocks from the two main lines of “transformation + reversal”. In terms of institutional reform, the agriculture industry is ushering in a dual reform of state-owned enterprises and the agricultural reclamation system. From the perspective of agricultural reclamation system reform: the 2015 No. 1 Central Document for the first time highlighted accelerating agricultural reclamation reform in a dedicated section, and combined with investigations of the agricultural reclamation system by multiple central ministries and commissions in 2014, against the background of accelerated land transfer reform, the state's need to cultivate large agricultural enterprises, and state-owned enterprise reform, we believe the agricultural reclamation system is on the eve of comprehensive transformation, and the agricultural reclamation system will usher in the inaugural year of comprehensively deepening reform in 2015.

We believe two types of targets will benefit from agricultural reclamation system reform. One type is listed enterprises within the agricultural reclamation system that possess land resources, innovate agricultural operation mechanisms, and improve management mechanisms, with focus on the “three carriages”: Beidahuang, Yasheng Group, and Nongfa Seed Industry. The second type is planting service providers that benefit from unified land management and may participate in land transfer: Dayu Irrigation and Huilong Shares.

⟦NL> On Friday of this week, Beidahuang had its cap removed and resumed trading, and we published an in-depth report on Beidahuang, “Beidahuang: China's largest landlord, facing the double inflection point of ‘agricultural reclamation reform + state-owned enterprise reform’”. We believe the company has three reform paths: a) injection of group assets; b) introduction of strategic investors to improve operating efficiency; c) equity incentives and employee stock ownership. See our in-depth report for details.

In late March, we jointly held a conference call with senior executives of Yasheng Group and Nongfa Seed Industry to interpret investment opportunities in agricultural reclamation reform. For details, please refer to our in-depth report “Agricultural Reclamation Reform Is Imperative, Key Recommendation of the Agricultural Reclamation System’s ‘Three Carriages’”, as well as the meeting minutes.

On Thursday, the “Decision of the Central Committee of the Communist Party of China and the State Council on Deepening the Comprehensive Reform of Supply and Marketing Cooperatives” was issued, further implementing the agricultural reform program of the 2015 No. 1 Central Document. Supply and marketing cooperatives, as an important means for the central government to regulate the grassroots rural economy, help realize the central government's control over the circulation of agricultural materials and agricultural products, and improve the capacity of basic rural public economic services. This revitalization of supply and marketing cooperatives will provide good opportunities for enterprises affiliated with supply and marketing cooperatives, with focus on: Huilong Shares and Dongling Grain & Oil.

2. Continue to recommend targets of business model transformation, agricultural enterprise internet transformation and upgrading.

In terms of transformation, we take business model transformation targets (“internet + agriculture”) as the focus, with top recommendations Dabeinong, Batian Shares, and Jianghuai Power. Key focus: New Hope (newly added).

1) On Monday, at the Essence Second Quarter Strategy Meeting, we held the “internet + agriculture” industry forum, inviting multiple experts to give speeches and holding roundtable meetings with multiple listed companies to jointly discuss the “internet + agriculture” business model and investment opportunities. For details, please refer to the meeting minutes.

2) On Wednesday, we published an in-depth report on Jianghuai Power, “Building a ‘new farmer’ operation service platform, firmly recommend!”.

3) In early February, we published an in-depth report on agricultural internet, “The Next Outlet of Industrial Internet: Agriculture!”, and jointly held a conference call with 6 agricultural listed companies, leading the investment trend in the capital market.

4) In May 2014, we published an in-depth report on Dabeinong, “Dabeinong: The ‘pig’ standing at the outlet of the mobile internet wave!”.

5) In early March, we published our second heavyweight in-depth report, “Dabeinong: The Next Shanghai Ganglian + East Money!”, once again providing an in-depth interpretation of Dabeinong's internet transformation and upgrading strategy. At the same time, on March 6 we exclusively held a conference call, joining hands with TMT experts to jointly provide an in-depth interpretation of Dabeinong's path to a 100 billion market value.