The first three quarters are off-season, and the results are in line with our expectations.

The company announced 1-3Q23 results: 1-3Q23 revenue year-on-year + 1.2% to 1.55 billion yuan, return to the mother net profit-72% to 10 million yuan; of which 3Q23 revenue-17% to 470 million yuan, return to the mother net profit-30 million yuan, year-on-year loss. The performance is basically in line with our expectations. On the one hand, the performance fluctuation is due to the off-season of sales in the first three quarters, with profits accounting for an average of 104% in the last five years; on the other hand, it is also affected by the increase in scientific research investment and corn market development costs this year, and the decline in the proportion of food crop revenue.

Trend of development

The seed industry grew steadily in the 2022-2023 sales season, and seed pre-sales improved in the new sales season. 1) the seed industry continued its outstanding performance in the 2022-2023 sales season. In the last operating year (August 1, 2022 to July 31, 2023), the company's rice / corn / wheat seed revenue was + 11%, 40%, 116%, and 27%, respectively, compared with the same period last year. The main seed industry continued its outstanding performance; the sales income / average price of grain crops was-25% / flat, respectively, compared with the same period last year, and the proportion of food crop revenue decreased. 2) 3Q23 contract liabilities increased year-on-year, and seed pre-sales improved in the new sales season. The seed of the company mainly adopts the pre-sale mode, and the contract debt of 3Q23 Company (mainly for the payment of goods received in advance) is + 23% to 1.67 billion yuan compared with the same period last year, which we think reflects the improvement of pre-sale in the new sales season. And the current grain prices remain relatively high, pesticides, fertilizers and other agricultural materials prices are lower than the same period last year, we believe that the overall prosperity of the planting industry is better, also good for the company's seed sales performance in the new sales season.

Traditional off-season overlay costs put pressure on profitability in the first three quarters. 1) Gross profit margin: 1~3Q23/3Q23 's gross profit margin is from + 2.6/-1.0ppt to 22.2% to 17.1% respectively compared with the same period last year. We believe that the decline in 3Q23 gross profit margin may be affected by the off-season and dealer settlement and return, while the increase in 1~3Q23 gross profit margin is mainly boosted by the increase in seed prices this year. 2) expense rate: 1~3Q23/3Q23 's sales, management, R & D and financial expense rates total year-on-year + 5.2/+10.0ppt, which we believe is mainly due to the increase in expenses caused by the company's increased investment in scientific research and active expansion of the corn market this year. Based on this, the 1~3Q23/3Q23 homing net interest rate is year-on-year-1.8/-7.4ppt to 0.7% Universe 6.1%, and short-term profitability is under pressure.

With both variety advantages and biological breeding reserves, long-term steady development can still be expected. 1) Rice varieties: we believe that the company's rice breeding has both variety and marketing advantages, and the main varieties such as Tsuen you 822 and Quan Yousi Miao are expected to contribute to the steady increase of rice seed market share. 2) Maize seed: we believe that the company's successful acquisition of Hebei New era this year is expected to enhance the corn variety reserve and regional distribution, and contribute to effective performance increment; at the same time, the industrialization of domestic biological breeding has opened a new chapter, some genetically modified corn varieties in the industry have passed the preliminary examination of varieties, and the corn seed industry is expected to usher in the rapid expansion of market scale and the concentration of competition pattern. We expect that the company's cooperation with major shareholders in the GM business is also expected to contribute to its long-term growth.

Profit forecast and valuation

The current share price is equivalent to 23Universe 24-year 31-plus 24-fold P-swap E. We keep the 24-year net profit of 23xt unchanged at 2.7 / 350 million yuan. Considering the downward movement of the valuation center of the industry, we reduce the target price by 11% to 12.0 yuan, corresponding to the upside space of 23x24 42x2xpxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Maintain an industry rating that outperforms.

Risk

Industry competition; intellectual property disputes; order agriculture operation risk; overseas project promotion is not as expected.