Incident: The company recently released its 2022 report. In 2022, it achieved revenue of 12.727 billion yuan, an increase of 11.86%; the net profit of the mother returned to the mother was 826 million yuan, an increase of 10.76%; after deduction, the net profit of the mother was 671 million yuan, an increase of 13.19%. The basic earnings per share were 0.6 yuan, and the ROE was 13.14%, up 0.28 percentage points from the previous year. The reviews are as follows:

The area of cultivated land in the rice and wheat cultivation business has been steadily expanding, and the resource advantage has been further strengthened. In 2022, the company actively optimized the planting structure and strengthened fine management. Despite natural disasters such as droughts and low temperatures, the yield and total yield of rice and wheat products were basically stable. The annual yield of rice and wheat from its own base was 2,280 kg, and the annual yield of rice and wheat at the expanded base was 1,910 kg, which is basically the same as the previous year; the total self-operated production of large wheat was 5331,500 tons, a decrease of 1.53%; the company responded positively to the government call and successfully completed the 100,000 mu of corn and soybean complex cultivation tasks, with a total output of 37,200 tons and 0.66 million tons of corn and soybeans. In 2022, the company actively participated in land transfer, independent operation and the area of cultivated land transferred steadily expanded, and the advantages of land resources were further expanded. As of the fall broadcast in 2022, the area of cultivated land under independent management was about 1,278 million mu, of which about 318,800 mu were transferred (including land trusteeship and cooperative planting, same below). In the past three years, the company's operating land area has been growing steadily. In particular, the land transfer area has increased by about 80,000 mu, with an average annual increase of 6.63%. In terms of gross margin, the gross margin of large wheat was 33.25%, up 0.17 percentage points from the previous year; the gross profit margin of rice was 10.07%, down 9.33 percentage points from the previous year.

Revenue from the conventional rice and wheat seed business increased, and gross margin increased. In 2022, the revenue of the rice and wheat seed industry was 1,926 billion yuan, an increase of 11.91%; the increase in revenue was mainly due to increased sales and price increases of seed products. Throughout the year, the company sold 308,200 tons of conventional wheat seeds, an increase of 11.05%; sales of conventional rice varieties were 76,400 tons, a decrease of 27.39%. The total sales volume of the two products was 384,600 tons, an increase of 11.86%. The gross profit margin of seed products was 12.63%, up 1.23 percentage points from the same period last year. In the past three years, the company produced more than 400,000 tons of good rice and wheat seeds per year, accounting for more than 40% of the market share of conventional rice varieties in Jiangsu Province, and the market share has remained stable. Other businesses grew well. The rice processing business achieved revenue of 4,555 billion yuan, an increase of 7.89%; the agricultural service business achieved revenue of 2,566 billion yuan, an increase of 31.79%; and cooking oil achieved revenue of 3,288 billion yuan, an increase of 4.97%.

Major projects have progressed smoothly, and core strengths have been further strengthened. The company successfully completed the acquisition of Suken Malt in 2022 to resolve related transaction issues; invested in the establishment of Jiangsu Seed Industry as a wholly-owned subsidiary to focus on building a leading enterprise that fosters integration; invested more than 200 million yuan in infrastructure projects such as water conservancy, drying, plant renovation and expansion throughout the year, and focused on infrastructure construction such as roasting, shining, and storage to enhance disaster resistance and harvest capacity. With the completion of the construction of these major projects, the company's arable land resource advantages and quality management capabilities have been further enhanced, which is conducive to the company's long-term development.

Profit forecasts and investment recommendations. Against the backdrop of a weak global economy and intensifying geopolitical conflicts, China's agricultural policy goals will focus more on food security and seed autonomy and control. In the next five years, the strategic position of food security and autonomous and controllable seed sources will become more prominent. The seed industry and grain planting industry are expected to continue to receive strong policy support, and food prices are also expected to maintain a long-term steady upward trend. Benefiting from this, the company's core business, grain cultivation and seed business, is expected to maintain a good growth momentum. As the advantages of arable land resources are strengthened, it is also expected that the profitability of the main business will gradually increase. The company's net profit for 23/24 is estimated to be 921/1,040 million yuan, corresponding to PE of 19.53/17.29 times, maintaining the “buy” rating.

Risk warning: The medium- to long-term increase in food prices fell short of expectations, and policy support for the planting industry fell short of expectations