Incident Overview
The general trend is for leading wine companies to concentrate on purchasing wheat, sorghum, etc. from leading upstream producers. As the absolute leader in domestic wheat seeds, the company is also the only domestic sorghum seed company involved in the sorghum seed business. It has set up the wine and food business for many years, and has reached substantial cooperation with many domestic wine companies. The future wine and food business is expected to become a new profit growth point for the company.
We have maintained the company's EPS forecast of 0.05/0.09/0.13 yuan respectively in 2020-2022. The PE corresponding to the current stock price is 115/65/44X respectively, maintaining the “buy” rating.
Analytical judgment:
Wheat seeds are the absolute leader, and sorghum seeds are ready to go
The company is the absolute leader in domestic wheat seeds, and is also the only domestic growing enterprise with a sorghum seed business. In terms of wheat, the company achieved wheat seed revenue of 295 million yuan in 2019, ranking first in the country. Maotai's wine varieties “Panmai 8” and “Panmai 5” are excellent varieties independently developed by Henan Dishen, a holding subsidiary of the company; at the same time, the “Yangmai” series of high-quality wheat varieties from Jiangsu Jindi, another holding subsidiary of the company, are also ideal for composing music.
In the field of sorghum seeds, the company has been established for many years. Since 2014, the company has continued exclusive strategic cooperation with the French Euralis (Euris) Group (whose corn, sunflower and sorghum seed industries are leading in Europe) on high-quality high-yielding sorghum varieties. Until December 31, 2019, the company issued its articles of association (revised version), adding retail of sorghum seeds to the company's main business, and Nongfa Seed Industry became the first domestic enterprise whose main business involved sorghum seeds in China. As the main raw material in the winemaking process, the amount of sorghum used is several times that of alcohol used to make music such as wheat and barley. The company is expected to quickly seize the huge sorghum seed market for winemaking with its in-depth layout in the sorghum seed field.
The company has cooperated with Maotai and many other wine companies on wine and grain procurement through hierarchical screening. The company's “Panmai 8” and “Panmai 5” wheat varieties stood out from the many wheat varieties and were confirmed by Maotai Distillery as designated varieties grown on an organic wheat base. The company has signed supply agreements with Kweichow Moutai and have begun to supply wheat seeds as alcohol food in batches. The price of the seeds sold by the company to dealers is higher than the price of seeds sold by the company to dealers. As a new business in addition to the traditional seed industry, the wine and food business not only has a higher gross profit margin, but also has an extremely broad market space. Currently, the company's “Panmai No. 8” and “Panmai No. 5” varieties have also reached long-term strategic cooperation with many wineries such as Jingjiu, Gaojang, Maoquan, Pengcheng, 49fang, Xiantan, Sichuan, and Jiannanchun.
The advantages are outstanding, and alcohol and food will become the company's new profit growth point
Wine companies use wheat, sorghum, etc. as the main raw materials for production. Every year, they need to purchase large quantities of crops such as wheat and sorghum from intermediaries. There are major hidden risks in terms of food quality, food safety, source stability, and traceability. Grouped grain enterprises are far superior to grain intermediaries in terms of germplasm resources, R&D capabilities, and transportation and storage capacity. In the future, leading wine companies will concentrate their procurement of wheat, sorghum, etc. on leading upstream cultivators. The company has been in the wine and food business for many years, and has core competitiveness such as variety advantages, first-mover advantages, and base advantages, which can ensure the continuous and stable supply of high-quality wine and food. Combined with the company's business layout supporting the entire industry chain such as agrochemical business, financial services, agricultural insurance, warehousing and transportation, the company is expected to use the wine and grain business to achieve rapid expansion of contract farming.
Investment advice
Wheat and sorghum are the main raw materials produced by wine companies. The company is the leading domestic wheat seed company and the only domestic sorghum seed producer. It has set up the wine and food business for many years, and has reached substantial cooperation with many domestic wine companies. We believe that it is the general trend for wine companies to concentrate on purchasing raw materials such as wheat and sorghum from upstream planting groups, and the company is expected to expand this into a new profit growth point. We keep our current profit forecast unchanged. We expect that in 2020-2022, the company's EPS will be 0.05/0.09/0.13 respectively, and the PE corresponding to the current stock price will be 115/65/44X respectively, maintaining the “buy” rating.
Risk warning
The risk of natural disasters, the risk of the spread of the epidemic, and the risk of seed sales falling short of expectations.