Overview of events
The company released the 2020 mid-term report, during the reporting period, the company achieved operating income of 1.255 billion yuan, yoy-46.59%; to achieve a net profit of-9.0787 million yuan, yoy+9.01%.
In the second quarter alone, the company achieved an operating income of 947 million yuan, while yoy-34.72%; achieved a net profit of 1.17 million yuan, a year-on-year turnround. The semi-annual report results are in line with expectations.
Analysis and judgment:
The surge in wheat seed sales has led to a significant increase in the income of the seed industry.
In terms of seeds, 2020H1, in response to the impact of COVID-19 's epidemic situation, the company is market-oriented, timely adjust and optimize production and management strategies and business models, speed up resumption of production, set up agricultural material platform online sales and many other measures. During the reporting period, the company's seed sales volume was 13300 tons, an increase of 80.95% over the same period last year, of which corn seed sales were 2316.39 tons and yoy-37.16% Wheat seed sales 9081.90 tons, yoy+497.35%; rice seed sales 1862.91 tons, yoy-12.21%. In terms of chemical fertilizer, COVID-19 's epidemic situation has a great impact on the import and export of chemical fertilizer, the company's chemical fertilizer import volume can shrink, 2020H1, the company's chemical fertilizer sales volume of 452200 tons, yoy-50.44%. In terms of pesticides, affected by the new management policy, environmental protection, Sino-US trade frictions and supply-side structural reforms and other factors, the production capacity of some small and medium-sized pesticide enterprises accelerated. During the reporting period, the company sold 6165.21 tons of pesticides, but the market share of yoy-0.82%, increased slightly.
The seed industry ushered in an inflection point of prosperity, and the company's profits were highly flexible.
On the supply side, on the supply side, under the influence of the soybean revitalization plan, the domestic corn sown area did not recover but declined further in 2019, and the state reserve inventory-sown area both bottomed out; at the same time, the threat of Spodoptera litura to reduce corn production is still under pressure on the corn supply side. From the point of view of demand, the national breeding sow stock became regular for the first time in October 2019, and achieved positive year-on-year growth for the first time in June 2020. With the rapid release of sow production capacity, the demand for forage corn will gradually increase. The intensification of the contradiction between supply and demand of corn will support the upward price of corn and accelerate the elimination of stocks of other food crops such as wheat and rice. China's planting industry will usher in a big inflection point of economic reversal. The profits of the company's corn, wheat and rice seed business are expected to be released rapidly. at the same time, the rebound in planting prosperity will lead to the simultaneous growth of the company's agricultural materials business, such as fertilizers and pesticides, and the company is expected to benefit from all aspects.
The wine and grain business is advancing steadily and is expected to become a new profit growth point. Food crops such as wheat and sorghum are important raw materials for liquor-making. Traditional wine enterprises generally buy wine and grain from middlemen as the main raw materials for wine making, but based on the considerations of food quality, food safety, source stability and traceability, it is a general trend for leading wine enterprises to purchase wheat, sorghum and other wine and grain from upstream leading seed enterprises in the future. On the one hand, the company has laid out the wine and grain business for many years, and has many core competitiveness, such as variety advantage, first-mover advantage, land resource advantage, industry chain matching advantage, etc., which can ensure the sustained and stable supply of high-quality wine and grain; combined with the company's business layout of the whole industry chain, such as agrochemical business, financial services, agricultural insurance, warehousing and transportation, the company is expected to realize the rapid expansion of order agriculture with the help of wine and grain business. On the other hand, the wine and grain business has a higher gross profit margin than the traditional seed business. It is estimated that the gross profit margin of wheat seeds connected to wine companies is 17%, which is higher than 15% of traditional wheat seeds. The purchase price of organic sorghum can reach about three times that of ordinary sorghum. We believe that the wine and grain business is expected to become a new profit growth point of the company.
Investment suggestion
We keep our profit forecast unchanged, with a forecast that the company's EPS will be 0.05amp 0.13 yuan respectively from 2020 to 2022, and the current share price will correspond to a PE of 118max 67max 45X, maintaining a "buy" rating.
Risk hint
The risk of natural disasters, the risk of epidemic spread, and the risk that seed sales are less than expected.