Due to the downward price of agricultural products and the sluggish consumer demand for staple grains, the company's 23H1 revenue and profits are temporarily under pressure.
In this planting season, the planting efficiency of the company increased steadily, and the wheat yield and per unit yield reached a new high, laying the foundation for the annual performance and tamping the core competence for the follow-up development. The seed industry actively opened up non-provincial markets and achieved a year-on-year increase in revenue. Malt business is growing at a high speed. Considering the factors such as the slight boost in domestic agricultural products prices in the second half of the year and the steady improvement of the company's planting efficiency, we maintain the company's EPS forecast of 0.62 soybean 0.67 soybean 0.75 yuan in 2023-2025. Considering the company's leading position in grain cultivation and referring to the historical average valuation level, the company is given 24 times PE in 2023, corresponding to the target price of 15 yuan, maintaining a "buy" rating.
23H1's revenue and profit fell compared with the same period last year. Su Ken Nong Development announced its mid-2023 report that its operating income during the period was 5.29 billion yuan, down 14.0% from the same period last year; the net profit from its mother was 280 million yuan, down 19.1% from the same period last year; and the net profit from non-return was 220 million yuan, down 22.4% from the same period last year. The company's performance declined year-on-year, mainly due to the decline in the prices of agricultural products such as wheat, edible oil and rice in the first half of the year.
Depressed demand suppresses food prices, and the company's performance is under temporary pressure. In the first half of 2023, the high price of domestic wheat fell, and the low price of rice stabilized. According to Wind data, the average spot price of wheat in 23H1 is 1.48 yuan per jin, down 3.8 percent from the same period last year, and the average price of japonica rice in the national market is 1.90 yuan per jin, which is basically the same as the same period last year. Rice and wheat prices are depressed, superimposed on the depressed consumer demand for staple grains in the first half of the year, and the company's revenue and profits are under short-term pressure. According to the company announcement, the company's 23H1 planting industry contributed 661 million yuan in revenue, down 14.9% from the same period last year. According to KuaiBao, the sales of wheat and rice produced by 23H1 fell 22.3% and 35.5% respectively compared with the same period last year.
Steadily improve the planting efficiency and consolidate the foundation of the company's development. The company takes self-supporting grain cultivation as the core business, and the planting efficiency with per unit yield as the core index is the company's core competitiveness. 23H1 continues to improve its planting efficiency, and both summer grain yield and total yield have achieved historic results this quarter, laying the foundation for full-year results. In the medium and long term, as a scarce enterprise of corporatization, scale, standardization and mechanization of planting rice and wheat, the company's per unit yield increases, on the one hand, it helps to improve the company's profitability, on the other hand, it also lowers the company's threshold for land transfer, which helps to accelerate the speed of land transfer and release the company's growth potential.
Seeds, agricultural services, malt and other rapid development, tamping the foundation of the whole industry chain management. 1) seed business. 23H1 achieved a high increase in revenue from the seed business, with revenue of 1.75 billion yuan, an increase of 189% over the same period last year. Dahua seed Co., Ltd., a subsidiary of Dahua, has deeply explored the market outside the province, and its business performance has increased significantly. In May 2023, Dahua seed industry was once again rated as the national key leading enterprise of agricultural industrialization. We expect that the company's seed business will develop both in connotation and denotation and contribute more performance. 2) agricultural service business. 23H1's agricultural service business contributed 1.44 billion yuan in revenue, an increase of 3.9% over the same period last year. Suken Agricultural Service, a subsidiary, has built a complete agricultural material supply system, sales network system and all-agricultural service system. The company's agricultural service business has built a business model of "based on its own needs, giving full play to its advantages and radiating the surrounding area", which is expected to achieve sustained and stable growth. 3) Malt business. 23H1's malt business contributed 540 million yuan in revenue, an increase of 37.9% over the same period last year. Suken malt, a wholly owned subsidiary, is one of the five major malt production enterprises in China. Under the background of high-end and fine brewing of downstream beer consumption, the demand for high-quality malt is increasing. Malt business is expected to become a new growth point for the company.
Risk factors: natural disaster risk; food price fluctuation risk; planting cost risk of sustained and rapid rise; company land expansion area does not reach the expected risk; tax preferential policy and government subsidy policy change risk.
Investment advice: the company's 23H1 revenue and profits are under temporary pressure. The company's wheat planting efficiency has improved steadily this season, and its per unit yield and total yield have reached new highs, laying the foundation for annual performance and tamping core competence for follow-up development. The external development of the seed business is smooth, and the revenue is higher than the same period last year. Malt business operates at a high speed. Considering the factors such as the slight boost in domestic agricultural products prices in the second half of the year and the steady improvement of the company's planting efficiency, we maintain the company's EPS forecast of 0.62 soybean 0.67 soybean 0.75 yuan in 2023-2025. As the company is the only listed company with self-grain cultivation in China, it is incomparable.
Taking into account the company's historical valuation level of 20-30 times over the past three years and its leading position in grain cultivation, we give the company 24 times PE in 2023, corresponding to a target price of 15 yuan, and maintain a "buy" rating.