Event: the Company released its preliminary interim report. In 1H12, the Companyposted total operating income of RMB 48.30B, up 20.0% YoY, and net profitattributable to shareholders of the listed company of RMB 2.87B, up 30.08% YoY,relative to diluted EPS at RMB 0.95/share, slightly over our previous forecast of RMB0.93/share.

Premium growth in property and life insurance keeps going up. 1) The Company posted premiumsof RMB 75.37B in the life insurance business in 1H12, up 4.4% YoY, and premiums of RMB 9.23Bin the single month of June, up 14.4% YoY, which keeps growing compared to the previous months. 2) In 1H12, premiums amounted to RMB 110.9B before standard adjustments. Premiumconfirmation rate was 68%, slightly up compared with the 75% in 1Q12, showing decliningproportions of premium income from universal insurance. 3) The Company achieved premiumincome of RMB 48.75B in its property insurance business, up 19.68% YoY and premiums of RMB8.57B in the single month of June, up 21.66% YoY. Excluding premiums in June, premium growth oflife and property insurance rose 3.15% YoY and 19.27% YoY as compared with premiums in theprevious five months.

Event: On January 4, the Company has accepted the resignation from formerChairman of the Board Mr. He Zongren and Mr. Zhang Hai, who was the formerVice-Chairman of the Board and General Manager of the Company. On the same day,the Board of Directors elected Mr. Yang Shujun as new Chairman of the Board andMr. He Zongren new Vice-Chairman of the Board. The Company hired Mr. WuXiangning as the new General Manager. The appointed new Chairman Mr. Yang Shujun is currently the Chairman andSecretary of the CPC Committee of Gansu Agricultural Reclamation Group Co., Ltd. We believe Mr. Yang’s management will bring the following two positive impacts onthe Company: 1.) To promote the integration of assets between the Company and theGroup. The Company announced the asset swap proposal last December, planning toswap land and agricultural assets totaling RMB 639M from its 2nd largest shareholder,Gansu Yasheng Salt Chemical Industrial Group, with its own industrial assets totalingRMB 839M. Mr. Yang’s new management will promote the smooth progress of thisasset swap. In addition, some of the Group’s agricultural assets might be injected intothe Company after the land ownership problem is addressed. The new managementwill further optimize the Company’s asset structure, considering some of theCompany’s assets, which do not fit modern agriculture, need to be swept. 2.) Topromote the consolidation of the Company’s subsidiary farms. The Companylaunched an additional offering towards the Group for the establishment of seven newfarms in 2009, which increased the number of farms it owns to ten. The seven newfarms have been operating under the form of household contract, which constrainedthe scale, standardization, and cost control of the farms. So the Company is dedicatedto consolidate the resources in the farms in order to realize agriculturalindustrialization. In our view, Mr. Yang’s management is capable of integrating thenew farms and accelerating agricultural industrialization. We like the Company because of its: 1.) Transformation of principal business: itdivests industrial assets, which reported losses and focuses on modern agriculture. 2.) Change of earnings model: based on the industrialization of its principal products,the Company enhances the profitability of agricultural assets by transforming thetraditional household contract model to a unified operating model in the farms. 3.)New performance drivers: Yuerhong Farm’s grass land, which totals 1.85M mu(1mu=667m2), is currently used for sheep farming. What’s worth mentioning is thenew 0.55M mu of uncultivated land might become the Company’s new performancedriver (for more details, please refer to our last report released on Dec. 20, 2010). We reiterate a “Buy” rating. We forecast the Company will realize net profits attributedto the parent company of RMB 156M, 306M, and 504M, respectively, from 2010 to2012 and give fully diluted EPS estimates of RMB 0.09, 0.18, and 0.29, respectively. Considering the Company’s new profits might grow at the compound growth rate of61% in the next three years and the expectation for land appreciation, we give the 12EPE multiple of 35x-40x, indicating the one-year fair price range of RMB 10-12(41%-70% upside room based on the current price).