Event: the company recently released its third-quarter 2023 results report. In the first three quarters of 2023, the company achieved operating income of 654 million yuan, year-on-year + 16.0%, and homed net profit of 95.36 million yuan,-15.1% compared with the same period last year. Of this total, 23Q3 achieved 171 million yuan of revenue, + 37.7% of the same period last year, and 20.79 million yuan of net profit of 20.79 million yuan, + 12291% of the same period last year, mainly due to normal fluctuations in sales off-season. The comments are as follows:

The core corn seed business grew steadily and the overall gross profit margin rebounded in the third quarter alone. In the first three quarters, the company persisted in taking the market as the orientation, gave full play to the brand advantage of "Denghai", relied on the excellent market expression of corn seed products for many years, strengthened the marketing efforts, and maintained the stable development trend of the core main business. In the first three quarters, the company's gross profit margin was 30.6%, down 2.6 percentage points from the previous year, mainly due to a significant increase in the cost of seed production. In the third quarter alone, the gross profit margin of sales was 35.52%, an increase of 10.72 percentage points over the second quarter and 17.56 percentage points over the same period last year.

The advance payment is + 24% compared with the same period last year, and the prosperity of the corn seed industry is expected to rise. At the end of Q3, the company's contract debt was 1.07 billion yuan, + 24% compared with the same period last year. The increase in contract liabilities, on the one hand, benefits from the high corn prices downstream and the increased enthusiasm of downstream farmers, on the other hand, it also benefits from the company's continued strengthening marketing efforts and outstanding corn seed brand advantages. The third quarter alone is the off-season of seed sales, which leads to great fluctuations in the company's net profit level under the low base.

The company actively participates in biological breeding, and two varieties are listed in the preliminary trial list of new genetically modified maize varieties announced by the Ministry of Agriculture, which is expected to fully benefit from the full landing of transgenic commercialization. In 2023, the No. 1 document of the Central Committee explicitly proposed for the first time to speed up the industrialization of biological breeding of corn and soybean.

According to the announcement of the Ministry of Agriculture and Village in August 2023, the pilot scope of transgenic commercialization in 2023 will be extended to 20 counties in Hebei, Inner Mongolia, Jilin, Sichuan and Yunnan provinces, and trial planting will be arranged in Gansu and marked with good results. Transgenic corn and soybean showed outstanding resistance to insects and herbicides, and the control effect on Lepidoptera pests such as Spodoptera litura was more than 90%, and the weeding effect was more than 95%. Genetically modified corn and soybeans can increase the yield by 5.6%, 11.6%. On October 17, 2023, the Ministry of Agriculture announced the first national trial list of genetically modified corn and soybean seeds. A total of 37 corn seed products and 14 soybean seed products were listed, among which 2 varieties were listed by the company. The publicity of the national review list means that the development of GM industrialization will enter a comprehensive landing stage, which is expected to bring incremental market space to the industry and increase the market share to the leading enterprises. The company has carried out in-depth cooperation with Dabei Nong and other domestic advanced genetically modified character companies, and is expected to continue to lead the upgrading of genetically modified varieties after the full landing of transgenic varieties by virtue of the excellent advantages of maize cross breeding in the future. and then share the share increase dividend brought by the increase in the threshold of the industry.

The variety advantage of the company is obvious, the medium-and long-term prospect can be expected, and the holding rating can be maintained. In the past 50 years, the company has persisted in breeding research and innovation and tackling key problems with high yield. it has cultivated maize inbred lines 478,107,DH382, DH351, Ye 52106, 8001, 515 and DH65232 with outstanding contributions, and completed the replacement of five generations of maize hybrids represented by Yedan 2, Yedan 6, Yedan 13, Denghai 661 and Denghai 605, Denghai 618, leading the development direction of Chinese hybrid corn for many times. The existing varieties are rich in reserves and have outstanding characteristics of high yield and high resistance. In 2021, the total sales of hybrid corn ranked second in China, and the national extension area of Denghai 605 and Xianyu 335 ranked fifth and sixth in the national maize variety extension area. We are optimistic about the long-term competitive advantage and long-term development prospects formed by the company in terms of maize germplasm resources and varieties, and maintain the "overweight" rating. Combined with the results of the three quarterly reports, the company maintained its annual return net profit in 23-24-25 to RMB 2.38 million. According to the 24-year performance, it will be given 45 times PE, and the target price for the next 6 months is 18.4 yuan, which is 20% more than the current price.

Risk tip: the seed market fluctuates sharply, resulting in a lower-than-expected increase in product prices.