The main industry of the seed industry is improving, and the profit of Q3 is at a record high; the advance collection of 23Q3 continues to increase, and the seed power of landing products is still strong. After the industrialization of biological breeding, the advantage of landing varieties may be magnified and the investment rating of "strong recommendation" will be maintained.

The profit performance in the third quarter alone exceeded expectations. The revenue of the sea seed industry in the first three quarters of 2023 was 654 million yuan, + 16% compared with the same period last year, and the attributable net profit was 95.36 million yuan, compared with-15% last year. EPS 0.11 yuan; of which the revenue in the third quarter was 171 million yuan, + 38% year-on-year, and the attributable net profit was 20.79 million yuan (170000 yuan in the same period last year) and EPS0.02 yuan. Overall, the performance of the three quarterly reports exceeded expectations.

The main industry of the seed industry is improving, and the high cost of corn seed production is the main reason for the decline in profits in the first three quarters. In the first three quarters of 2023, the average spot price of corn was 2863 yuan / ton, benefiting from the high operation of corn prices and the decline in the cost of agricultural materials, the enthusiasm of farmers to buy seeds was high, the main business of the company's seed industry improved, and the income end increased compared with the same period last year; at the same time, the expense side continued to improve, and the three expense rates declined 1.07pct compared with the same period last year. The high cost of corn seed production is the main reason for the decline in profits in the first three quarters of the company: in 2022, the cost of corn seed production in northwest China rose continuously in 2022. Although there was a significant price increase in the core varieties in this sales season, it did not fully cover the increase in costs, and the company's gross profit margin fell by about 2.54pct to 30.6% compared with the same period last year. Although the third quarter was the off-season for traditional sales in the seed industry, the significant rebound in gross and net profit margins pushed 23Q3 profits to record highs, of which interest income of 7.83 million yuan also contributed to profit increment.

The advance payment continues to be high, and the variety power is still strong. The core varieties of Denghai have good stress resistance, especially in Huang-Huai-Hai region. The company's 23Q3 final contract debt is about 1.07 billion yuan, + 24% compared with the same period last year, and the dealers make positive payments, indicating that its corn varieties are still highly competitive and have a good start to the new sales season.

Transgenic industrialization may lead to the increase of quantity and profit of Denghai varieties. The state has paid more and more attention to food security and seed industry security, and the industrialization of genetically modified corn has made substantial progress. Among the 37 transgenic varieties announced by the state on October 17, 2 varieties were listed in Denghai. Denghai varieties have strong advantages in Huang-Huai-Hai and parts of East and North China. In the process of increasing transgene penetration in the future, the advantages of Denghai varieties are expected to continue to be magnified, and the landing of transgenic industrialization may lead to the increase of quantity and profit of dominant varieties.

Maintain the "highly recommended" investment rating. The high income of corn grain boosts the prosperity of the seed industry; the main corn producing areas of Huang-Huai-Hai are prone to rust, and the core varieties of Denghai have good resistance, so the performance in the new season is worth looking forward to. With the acceleration of the differentiation of the corn seed industry, the market share of the head seed enterprises is expected to increase; with the improvement of the supply and demand pattern of corn seeds and stricter policy supervision, the profit center of the industry may be repaired gradually. It is estimated that the company's net profit in 2023-25 is about 3.3 shock 4.4 / 530 million yuan, corresponding to EPS 0.37, 0.50 and 0.61 yuan, maintaining the "highly recommended" investment rating.

Risk hints: unpredictable events such as extreme weather, trade frictions and geographical conflicts lead to higher-than-expected fluctuations in food prices; sales / price increases / shipments are not as expected; the progress of GM commercialization is not as expected.