GM business ushered in the dawn, maintaining the "buy" rating
The downward pig cycle is a drag on the profit of the company's breeding business, which in turn affects the growth rate of 23Q3 feed business. In the first three quarters of 2023, the company achieved revenue of 23.9 billion yuan (yoy+8.31%) and net profit of-908 million yuan (yoy-174%). 23Q3 realized operating income of 8.26 billion yuan (yoy-5.02%) and net profit of-134 million yuan (yoy-175%). Considering that the pig price is lower than expected, we reduce the company's annual homing net profit forecast for 23-24-25 to-962 prime 0.23 billion yuan (the previous value is 1.12 billion yuan for 1.3 pound 8.3 pound), and the estimated BVPS is 2.37 pound 2.30 pound 2.54 yuan. We refer to the 23-year comparable company Wind consensus expected 3.09XPB average, considering that the current GM commercialization is about to start, the company has a leading advantage in the trait end, we give the company a 23-year 4.28XPB valuation, a target price of 10.14 yuan, maintaining a "buy" rating.
Depressed pig prices are a drag on the main business, 23Q3 continues to lose money.
Although 23Q3 domestic pig prices rebounded seasonally, due to the downward pig cycle caused by supply pressure, 23Q3 domestic pig farming industry is still generally at a loss, resulting in a significant slowdown in the year-on-year growth rate of national feed sales. Combined with the monthly data of the company's pig production, we estimate that the non-pig business income of the company's 23Q3 is about 6.87 billion yuan, which is-4.9% slower than that of 23Q2. We expect that the month-on-month growth of 23Q3's profits is mainly due to the narrowing of losses in pig farming business driven by the rebound in pig prices, while the decline in the year-on-year decline is mainly due to the decline in pig farming business losses and feed business profits compared with the same period last year.
The curtain of GM commercialization kicked off, with the company leading in character and varieties catching up with and surpassing last week's Ministry of Agriculture and Village announced the results of the first national trial of the first batch of GM corn and soybeans in China. We believe that the issuance of the approval number means that there are no policy obstacles to the commercialization of domestic GM corn and soybeans, and it is expected that the penetration of GM corn will increase rapidly, and the profit flexibility of related character companies and variety companies can be expected. As the leading company of transgenic traits, Dabinong accounted for about 59% and 36% of the first genetically modified corn and soybean approval numbers, respectively. At the same time, through its subsidiaries, Yunnan Datian and Beijing Fengdu, the company has also obtained three product review numbers, accounting for about 8.1%. We expect that on the one hand, the company can obtain patent licensing fees by virtue of its leading advantage in traits, on the other hand, it may be expected to cut into the sales of genetically modified corn varieties with the help of its subsidiaries to make further profits.
Short-term profits are under pressure, and long-term space is still wide.
Domestic sow stock shows a trend of accelerated elimination in 23Q3, or it is expected to lead the pig cycle to reverse as early as 2024, and the company's pig breeding business may be under short-term pressure and gradually improve next year; considering the decline in sow degeneration or gradual conversion into live pig stock, it is expected that the pig feed industry will be prosperous or under pressure in 2024.
The company has obvious advantages in genetically modified biotechnology, and there is a trend of overtaking in the corner with the commercialization of genetically modified biotechnology. we expect that the company still has a wide space for long-term development. After considering the income and profit contribution of GM, we downgrade the forecast of annual homing net profit in 2023-24-25 to-9.62 prime 0.23 billion RMB. The risk suggests that the progress or effect of GM variety promotion / seed industry supervision / pig price performance is lower than expected.