The downturn in the grain and oil market in the first half of the year put pressure on the company's performance. At present, the domestic food supply is tight, food prices may be easy to rise but difficult to fall; at the same time, the decline in the cost of agricultural materials leads to a rebound in planting income; with the expansion of the company's planting scale & structural optimization, the company's profitability is expected to continue to improve. Maintain the "highly recommended" investment rating.

Revenue and profit both declined, and the performance of the report was slightly lower than expected. The company's 2023H1 achieved revenue of 5.29 billion yuan,-14% compared with the same period last year; the attributable net profit was 280 million yuan,-19% compared with the same period last year; of which 23Q2 realized revenue of 2.83 billion yuan, year-on-year-21%, month-on-month + 16%, attributable net profit 162 million yuan, year-on-year-23%, month-on-month + 36% core EPS 0.12 yuan. The downturn in the grain and oil market in the first half of the year is the main reason for the company's performance pressure: specifically, 1) Price: 23H1 due to the existence of certain high yield expectations of wheat and other crops, the prices of agricultural products such as wheat and edible oil have fallen from the 22-year high, the production cost of rice in stock is high at the beginning of the same period, and the gross profit of core grain and oil products has declined. 2) sales volume: the continuous decline in market demand for agricultural products such as wheat, edible oil and rice led to a decrease in 23H1 sales, while new wheat sales decreased compared with the same period last year, and this portion of revenue and gross profit were not realized in the first half of the year. Overall, the performance was slightly lower than expected.

Grain prices are easy to rise but difficult to fall in the second half of the year, and the main grain and oil industries are expected to continue to benefit. Although the planting area of wheat was expanded in 2023 and the climatic conditions during the growing period were favorable, the rainstorm in the main producing areas caused some wheat to sprout and flow to feed enterprises since the middle and late May, resulting in a reduction in summer harvest wheat production and a shortage of high quality wheat. I am optimistic about the trend of domestic wheat prices in the later period. Considering the linkage between the prices of agricultural products, grain prices may be easy to rise but difficult to fall in the later period; the company's 23H1 grain and oil production is high, and based on the improvement of grain and oil consumption in 23H2, the company's rice, wheat, grain and oil main business is still expected to benefit.

The land area has increased steadily, and the cost control has increased revenue and reduced expenditure. Since the summer sowing in 2020, the company's operating land area has increased steadily, and the summer sowing area has expanded to 1.2825 million mu in 2023; the company has actively adopted various forms of land expansion, or led to a steady expansion of planting scale. On the other hand, the company optimizes planting efficiency, reduces production costs and highlights the advantage of large-scale production by improving planting technology and production management level. We judge that with the expansion of the company's planting scale, continuous optimization of structure and continuous amplification of brand value, there is still much room for improvement in the company's profitability in the future.

Maintain the "highly recommended" investment rating. At present, the domestic food supply is tight, grain prices are easy to rise but difficult to fall; the cost center of agricultural materials moves down, and the planting income can pick up; with the expansion of the company's planting scale and continuous optimization of the structure, the company's profit level is expected to continue to improve. It is estimated that the company will achieve an attributable net profit of 925 million yuan / 1.027 billion yuan / 1.123 billion yuan in 2023-2025, corresponding to an EPS of 0.67, 0.75 and 0.81 yuan respectively, maintaining a "highly recommended" investment rating.

Risk hints: the price of agricultural products rose less than expected, the cost of agricultural materials rose more than expected, natural disasters, the national minimum grain purchase price policy has undergone major changes; performance does not meet the expected risk.