Investment highlight

Covering the sea seed industry for the first time (002041), the industry is rated to outperform the industry with a target price of 19.00 yuan, corresponding to 44 times Pmax E in 2024. The sea seed industry is the leader of China's corn seed industry. We believe that under the background of speeding up the industrialization of biological breeding, the company is expected to accelerate growth by virtue of biological breeding layout and opening up the northeast market for the following reasons:

Under the background of seed industry revitalization, policy support resonates with technology iteration, and the landing of biological breeding drives the industry to iterate from cycle attribute to science and technology attribute. Corn is the largest race track in the seed industry, and its scale fluctuates periodically. The size of maize seed terminal in China was 31.2 billion yuan in 21 years, and the CAGR in 15-19 and 19-21 years was-0.2% and 4.6% respectively.

In the same year, the CR5 of China's / global corn seed industry was 20% and 72%, and there was more room for pattern optimization. 1) Policy support: in 23 years, the Central Committee No. 1 document proposed the in-depth implementation of seed industry revitalization action and the full implementation of major biological breeding projects; 2) technological iteration: 23-year approval list of genetically modified varieties was officially released, starting the process of biological breeding industrialization. The industry ushered in scientific and technological upgrading, industry expansion, and pattern optimization.

The team is professional and focused, the reserve of germplasm resources is rich, and the ability of cross breeding is outstanding to cast the core competitiveness.

The company has been in the forefront of the domestic corn seed industry for a long time, with a market share of 6.3% in 22 years.

1) breeding team: Mr. Li Denghai, Honorary Chairman, is the father of compact hybrid corn in China, with a total promotion area of more than 1.3 billion mu, continuously leading the high-yield research of maize breeding. 2) Germplasm resources: the company takes root in Huang-Huai-Hai region and accumulates many backbone parent resources of maize breeding, accounting for 15% of the 55 "national outstanding contribution maize inbred lines" ranking first in the country. 3) breeding ability:

Relying on our own rich experience in cross breeding, we have realized the blending of Chinese and Western germplasm resources, and developed leading products such as Denghai 605 and Denghai 618, of which the peak promotion area of Denghai 605 reaches 14.4 million mu.

Take the lead in benefiting from the industrialization of maize biological breeding, open up the main corn producing areas in Northeast China and open up a new growth stage.

1) Biological breeding: the first batch of quality review list covers Denghai 605D and Denghai 533D maize varieties, with both insect resistance and herbicide tolerance, among which Denghai 605D ranks fifth in the country with a 22-year extension area of conventional varieties, reaching 12.19 million mu. We believe that the company is expected to increase its share by virtue of first-mover advantages, high-quality varieties and complete commercial facilities, and we estimate that the profit of the company is expected to exceed 1 billion yuan after reaching the peak of GM infiltration. 2) opening up the northeast: we estimate that the northeast is 1.6 times the size of the Huang-Huai-Hai market, and the company is based on Huang-Huai-Hai. Through localized R & D and promotion, the company is expected to open the growth ceiling.

What is the biggest difference between us and the market? We believe that the market has not fully recognized the advantages of the company's maize germplasm resources reserve and breeding team, as well as the potential for the company to increase its market share under the background of biological breeding industrialization.

Potential catalysts: accelerating the industrialization of biological breeding, prediction and valuation of higher-than-expected profits for the promotion of new varieties in Northeast China and Huang-Huai-Hai.

We estimate that the company's EPS will be 0.32 yuan and 0.43 yuan respectively, and the CAGR will be 23% in 23 years. The current stock price corresponds to 35 times Ppace E in 2024, covering for the first time the rating and target price of 19 yuan given to the outperforming industry, and 44 times Phammer E in 2024, with 25% room to rise.

Risk

The industrialization process of biological breeding is not as expected, seed and grain prices fluctuate, and management changes.