The company released its 2023 mid-year report. At 2023H1, the company achieved operating income of 15.67 billion yuan, +17.0% year on year; realized net profit to parent - 770 million yuan, or -51.6% year on year. In Q2 alone, the company achieved operating income of 7.89 billion yuan, +13.8% year on year; realized net profit from parent income of -4.7 billion yuan, or -68.6% year on year.
The feed business is developing steadily. 2023H1, the company's feed sales revenue was 11.607 billion yuan, +21.45% year-on-year, and feed revenue accounted for 74.09% of revenue. Feed sales volume was 2.8816 million tons, or +18.34%; of these, 2,225,700 tons of pig feed, +22.40%, and 325,500 tons of ruminant feed, +16.54%; 148,800 tons of aquatic feed, -15.21%, were mainly affected by low aquatic product prices in the first half of the year and strategic adjustments of the company's aquatic feed business.
Low pig prices are dragging down performance. In 2023H1, the company's participating holdings listed a total of 2.78 million pigs, an increase of 40.2% over the previous year. Of these, the holding subsidiaries listed 1,725,300 heads, +38.3%, and the participating subsidiaries listed 1.0548 million heads, or +43.4%. In Q2 alone, the company listed a total of 1.34 million pigs, or +47.2%, of which the holding subsidiaries listed 840,000 heads, +34.8%, and the participating subsidiaries listed 500,000 heads, or +74.4%.
However, in the first half of the year, the average pig price in the industry was only 14.88 yuan/kg, and the average pig price in the Q2 industry was 14.43 yuan/kg. Pig prices were low, causing the company to lose money.
The leading position in the seed industry remains unchanged. 2023H1, the company's seed industry revenue was 264 million yuan, +45.54% year-on-year. Among them, rice seed revenue was 167 million yuan, +4.27% year on year; corn seed revenue was 74.39 million yuan, +553.86% year on year. Excluding the influence of Yunnan Datian, corn seed revenue was 71.8612 million yuan, +514.76% year-on-year. The company's insect-resistant and herbicidal corn products DBN9858, DBN9936, DBN9501, and DBN3601T have obtained agricultural genetically-modified biosafety certificates (production and application). Currently, it is the enterprise that has obtained the largest number of GM safety certificates for agricultural corn in China. If commercialization of GM is completely liberalized, the company is expected to benefit from a double increase in market size and concentration.
Considering that the implementation of the GM policy and the pig market fell short of expectations, we lowered our 23-25 performance forecast. We expect the company to achieve net profit of 1.92, 9.45, and 1,253 million yuan in 23-25 (the original forecast was 671, 14.89, and 1,934 million yuan), with a year-on-year difference of -445.4%, +592.1%, and +32.6%. Looking at the long term, the company's feed and breeding industry is expected to improve as the market recovers, and the competitiveness of the seed industry remains strong. If commercialization of genetically modified organisms is implemented, the company's growth potential is outstanding. We continue to use the FCFF valuation, target price 9.03 yuan, and maintain the “buy” rating.
Risk warning: Risk of falling short of expectations with genetically-modified policies, risk of falling demand for feed, risk of fluctuations in raw feed prices, risk of fluctuation in pig prices