Main points of investment:
The company released its third quarter report in 2023. In the first three quarters of 2023, the company realized operating income of 654 million yuan, year-on-year + 16.0%; net profit of 95.362 million yuan,-15.1%; and net profit of 45.182 million yuan,-27.9% of the same period last year. The comprehensive gross profit margin is 30.6%, year-on-year-2.5pct, and net profit rate is 15.4%, year-on-year-3.6pct.
In the third quarter, the company achieved operating income of 171 million yuan, year-on-year + 37.7%, and net profit of 20.785 million yuan, + 12291.0% compared with the same period last year, mainly due to the off-season sales of Q3 and a low 22-year base. Single Q3 comprehensive gross profit margin 35.5%, year-on-year + 17.6pct, month-on-month + 10.7pct (mainly Q3 company recoups some withholding returns); comprehensive net profit rate is 15.2%, year-on-year + 18.3pct, month-on-month + 3.9pct (mainly sales expenses + 20.3%). As the company Q3 rushed back part of the withholding return, the performance was higher than the previous Shenwan Hongyuan forecast (we expect the company's 23Q3 to achieve a return net profit of 5 million yuan in the third quarterly report).
The pre-sale of 23X 24 sales season was good, and the Q3 final contract debt reached 1.07 billion yuan, + 23.8% compared with the same period last year. The main reason is that the price of corn is at an all-time high, farmers have a strong enthusiasm for planting, the company's core varieties Denghai 605 and Denghai 533 perform well, at the same time, the company strengthens its marketing efforts, and the Q3 pre-sale of subsidiaries such as Denghai Pioneer and Denghai Wuyue is better. Improve profitability.
In the first three quarters of 23, the company's comprehensive gross profit margin was 30.6%, year-on-year-2.5pct, mainly because the cost of maize seed production continued to rise in 2023, and the value preservation per mu is expected to increase by about 500 yuan per mu compared with the same period last year. As of the third quarter of 23, the company's book inventory was 787 million yuan, + 74.9% compared with the same period last year, mainly due to the substantial increase in the area of seed production in the past 22 years. In 23 years, the company has appropriately reduced the area of seed production, while strengthening marketing efforts and actively digesting inventory.
The company's two genetically modified corn varieties have passed the preliminary examination and are expected to benefit from the accelerated process of GM commercialization. On October 17, 2023, the Ministry of Agriculture and Village announced the preliminary examination list of the first batch of genetically modified corn (37) and soybean (14). The company's core varieties Denghai 605 and Denghai 533 passed the preliminary examination, and all applied Dabei Nong character (DBN9936). The company's pillar variety Denghai 605 has excellent disease resistance and insect resistance, and the extension area has been more than 10 million mu since 2016. according to the data of the National Agricultural Technology extension Center, the extension area of Denghai 605 reached 12.19 million mu in 2022, ranking fifth in the country. Strong varieties superimposed with excellent characters, the company's variety competitiveness is expected to be further enhanced. At the same time, the pilot scope of genetically modified corn in 2023 has been extended to 20 counties in five provinces of Hebei, Inner Mongolia, Jilin, Sichuan, and Yunnan, and seed production has been arranged in Gansu. The 23pm 24 sales season is approaching, and the company is expected to seize the initial market share by virtue of the first-mover advantage, and the market share of corn seeds is expected to further increase.
Downgrade earnings forecast and maintain "overweight" rating. Due to the fierce competition in the corn seed industry in 2023, the company's sales unit price increase is expected to be lower than we expected, so we will adjust the company's corn seed sales unit price increase from 3% to 2%. At the same time, the company's marketing efforts are expected to increase, so we adjust the company's sales expense rate assumption from 5.2% to 5.5%. At the same time, the promotion area of GM corn in 2023 is lower than previously expected, so we reduce the 23-year GM corn permeability assumption from 1% to 0.8%. Based on this, we simultaneously lowered the company's profit forecast. It is estimated that in 2023-2025, the company will achieve an operating income of 1.36 billion yuan, a net profit of 2.35 billion yuan, and a net profit of 2.35 billion yuan (the original profit forecast for 23-25 years is 2.3 billion yuan). Compared with the same period last year, the company's profit forecast is-18%, and the current stock price is valued at 63X/38X/31X according to the PE valuation. With reference to comparable company Longping Hi-Tech's 24-year PE valuation level 44X (with reference to Wind consensus expectations) (Longping Hi-Tech and Denghai seed Industry are the first and second in corn seed market share, enjoy a certain valuation premium compared with other seed companies), maintain the "overweight" rating.
Risk hints: the impact of extreme weather; the poor performance of large varieties in the market; and the progress of GM corn promotion is not as expected.