Event: The company's revenue for the first three quarters of 2023 was +16.0% year-on-year, and net profit was -15.1% year-on-year.

Revenue for Q3 alone was +37.7% yoy, and net profit increased year-on-year. In the first three quarters of 2023, the company achieved operating income of 650 million yuan (+16.0% yoy) and net profit of 100 million yuan (-15.1% yoy); on a quarterly basis, 2023Q3 achieved operating income of 170 million yuan and net profit of 0.2 billion yuan; 2023Q1/Q2/Q3 single-quarter revenue -21.5%/+110.4%/+37.7%, net profit of the parent net profit of -57.1%/+279.3%/+12,291.0%.

The gross profit margin and net profit margin for the third quarter of 2023 both increased year-on-year. The company's gross sales margin for the first three quarters of 2023 was 30.6% (year-on-year -2.5pct). The period expense ratio was 22.4%, of which the sales expense ratio was 7.5% (y-o-y +0.5pct); the management expense ratio was 11.6% (y-1.6 pct); and the R&D expense ratio was 6.7% (y-1.2 pct). Net sales interest rate declined, -3.6pct to 15.4% year on year. The 2023Q3 gross margin was 35.5% (yoy +17.6 pct); sales expense ratio 10.6% (y-1.4 pct); management expense ratio 15.0% (y-5.2 pct); R&D expense ratio 7.3% (y-o-y +0.5pct); financial expense ratio -4.5% (y+1.0pct); net sales margin was 15.1%, +18.3 pct yoy. At the end of the third quarter of 2023, the company's contract liabilities increased by 23.8% year on year, mainly due to the year-on-year increase in sales advance receipts received; accounts receivable increased by 73.5% from the beginning of the period, mainly because various types of income were confirmed in the current period. At the same time, according to market conditions, credit impairment losses increased 390.7% year on year, mainly due to increased preparations for bad debt accrued in the current period; asset impairment losses increased 367.5% year on year, mainly due to an increase in preparations for falling inventory prices calculated in the current period.

The certification of genetically modified varieties has begun to be publicized, and leading companies have a first-mover advantage. On October 17, 2023, the Office of the National Crop Variety Assessment Committee published on the website of the Ministry of Agriculture and Rural Affairs the “Notice Concerning the Preliminary Examination of the Varieties Approved by the Fifth National Crop Variety Evaluation Committee”. After passing the approval of the varieties at the end of the publicity period, it is necessary to apply for a production and business license before commercial cultivation is possible. On the variety side, the Denghai seed industry has two varieties, namely Denghai 605D and Denghai 533D. Both cooperated with Dabeinong's DBN9936. Among them, the promotion area of Denghai 605 reached 12.19 million mu in 2022, ranking 5th in the country. We believe that after commercialization of genetically-modified genes is implemented, companies that have stocks of genetically modified varieties and have large single products will have a first-mover advantage.

Investment suggestion: After 50 years of continuous corn breeding research and development, innovation and high-yield research, the company is leading the development direction of hybrid corn in China. Future variety reserves will be improved, and at the same time, the direction of biological breeding will be laid out ahead of schedule, and it is expected that priority will be given to the commercialization of genetically modified genes. We expect the company's net profit from 2023-2025 to be RMB 301 million, RMB 360 million, and RMB 432 million, respectively. EPS was 0.34 yuan, 0.41 yuan, and 0.49 yuan respectively. The latest closing price corresponding to PE was 44, 37, and 31 times, respectively, maintaining the increase in holdings rating.

Risk warning: risk of agricultural product prices fluctuating due to natural disasters, risk of pests and diseases exceeding expectations, risk of worsening international conditions affecting agricultural product circulation, risk of variety promotion falling short of expectations, risk of agricultural policy disturbance