The company achieved year-on-year increases in revenue and net profit of the mother in 2022, and reached record highs. Domestic wheat prices continued to be high in 2022, driving revenue and profit growth in the wheat growing business and laying a solid foundation for the company's performance growth. Businesses such as rice cultivation, seed farming, agricultural clothing, malt, rice, and cooking oil are developing healthily and steadily.

Taking into account factors such as fluctuations in the price cycle of domestic agricultural products and the pace of expansion of the company's planting area, we lowered the company's 2023/2024 EPS forecast to 0.62/0.67 yuan (the original forecast value for 2023/2024 was 0.93/0.94 yuan), and added the 2025 EPS forecast to 0.75 yuan. Referring to the company's historical average valuation level and leading position in grain cultivation, the company was given 24 times PE in 2023, and the target price was lowered to 15 yuan to maintain the “buy” rating.

Revenue and net profit returned to the mother reached record highs. Suken Nongfa announced its 2022 annual report, achieving revenue of 12.73 billion yuan, an increase of 11.9% over the previous year; Guimu's net profit was 826 million yuan, an increase of 10.8% over the previous year; and Guimo deducted non-net profit of 671 million yuan, an increase of 13.2% over the previous year. The company's revenue, net profit returned to the mother, and non-net profit deducted from the mother all achieved year-on-year increases and reached record highs.

The wheat price boom is driving an increase in wheat cultivation performance. Domestic wheat prices continued to be high in 2022. According to Wind data, the average spot price of wheat in the country in 2022 was 1.56 yuan/kg, an increase of 19% over the previous year, reaching a high of 1.65 yuan/kg. The company's wheat production remained relatively stable in 2022, and the revenue and gross profit of the wheat business increased year-on-year. In 2022, domestic rice prices remained relatively stable, the company's rice sales were stable, and the rice business contributed relatively stable performance to the company. Overall, the planting industry contributed 3.49 billion yuan to the company's revenue (+9.8% year-on-year), with a gross profit margin of 22.6%, laying a solid foundation for the company's performance growth.

The area grew steadily, consolidating the foundation of the company's performance. As of the 2022 fall broadcast, the company independently operated about 1,278 million mu of cultivated land, an increase of 2.7% over the previous year. On the one hand, the planting area has increased slightly, providing a stable operating foundation for planting and various related businesses. On the other hand, the company assesses potential land transfer operation benefits with strict requirements and a careful attitude to ensure that once transferred, it can generate positive returns for the company. We expect that in the short to medium term, the company will maintain a stable planting area; in the long run, it is also expected that the company will explore further expansion of the planting area outside the province and overseas, providing greater possibilities for the growth of the planting area.

Other businesses are developing healthily, nurturing potential for performance growth. 1) Seed business. In June 2022, the company established Jiangsu Seed Industry Group to provide the “Jiangsu Plan” and “Su Reclamation Plan” to implement the “Seed Industry Revitalization”.

The company's seed business also stands on a higher and larger development platform. We anticipate that the company's seed business will develop both content and outreach, contributing more room for growth in performance. 2) Agricultural clothing business. The company's agricultural clothing business contributed 2.57 billion yuan to revenue in 2022, an increase of 31.8% over the previous year. The agricultural clothing business has implemented a business model of “based on its own needs, leveraging the advantages of harvesting, and radiating surrounding areas” and is expected to achieve steady growth. 3) Malt business. In May 2022, the company completed the acquisition of 100% of Suken Malt's shares. On the one hand, the malt business is an extension of the company's own barley growing business; on the other hand, it also follows the increasing demand for high-quality malt in line with the trend of high-end downstream beer consumption and the upgrading of craft brewing, which is expected to provide a new growth point for the company. 4) Rice industry and cooking oil business. The rice industry and cooking oil business continued to operate steadily in 2022. In particular, the edible oil business has effectively coped with external operating pressure and achieved steady development. We believe that after years of operation, the company's rice industry and cooking oil business capabilities have become more mature, and can continue to effectively carry the company's expansion from agricultural product cultivation to agricultural product processing.

Risk factors: risk of natural disasters; risk of fluctuations in food prices; risk of growing costs continuing to rise rapidly; risk of company land expansion falling short of expectations; risk of changes in preferential tax policies and government subsidy policies, etc.

Investment advice: The company's revenue and net profit returned to the mother in 2022 both achieved year-on-year growth and reached record highs. Domestic wheat prices continued to be high in 2022, and the company's wheat production was relatively stable, laying a solid foundation for the company's performance growth. Businesses such as rice cultivation, seed industry, agricultural clothing, rice industry, and cooking oil are operating smoothly. Taking into account factors such as fluctuations in the price cycle of domestic agricultural products and the expansion of the company's planting area, we lowered the company's 2023/2024 EPS forecast to 0.62/0.67 yuan (the original forecast value for 2023/2024 was 0.93/0.94 yuan), and the new 2025 EPS forecast was 0.75 yuan. The company is the only listed company that grows its own grain in China; it is an unrivaled company. We comprehensively considered the company's historical valuation level 20-30 times over the past three years, leading position in grain cultivation, etc., and gave the company 24 times PE in 2023, lowered the target price to 15 yuan, and maintained the “buy” rating.