Key points of investment:
The company's performance was dragged down by the aquaculture sector, and Q3 net profit and losses were drastically reduced month-on-month. According to the company announcement, the first three quarters of 2023 achieved a total revenue of 23.931 billion yuan, +8.31%; net profit loss of 908 million yuan, a decrease of 577 million yuan from the same period in 2022; net profit loss of 953 million yuan after deduction, a decrease of 549 million yuan from the same period in 2022; and net operating cash flow of 56 million yuan, -109.22% year-on-year. Among them, in the third quarter of 2023, the company's revenue was 8.265 billion yuan, -5.02%; net profit loss was 134 million yuan, a year-on-year decrease of 316 million yuan, a year-on-year decrease of 335 million yuan. In the first three quarters of 2023, the overall performance of pig prices was sluggish, and the company's performance was dragged down by the breeding sector, and pressure was phased.
The seed industry has ushered in historic changes, and leading companies are expected to seize the opportunity. On October 17, 2023, the Ministry of Agriculture and Rural Affairs issued the “Notice on the Preliminary Examination of Varieties Approved at the Fourth Approval Meeting of the Fifth National Crop Variety Evaluation Committee”. A total of 37 genetically modified corn varieties and 14 genetically modified soybean varieties have passed the preliminary review. Judging from the classification of traits, of the 37 genetically modified corn varieties that passed the preliminary review, Dabeinong accounted for 22, DBN9936, DBN9858, and DBN3601T, respectively; Longping Hi-Tech accounted for 9, all using Ruifeng 125. Since the beginning of 2021, China has carried out pilot cultivation of genetically modified corn and soybeans, the pilot area has been expanded year by year, and the results have been remarkable. This variety certification is the last step in opening up the commercial application of biological breeding in China. Relevant listed companies that have obtained variety certification are expected to benefit from the double increase in market share and profit levels at the same time.
The company's feed business is growing steadily, and the seed industry sector is ready to go. According to the company announcement, 23Q1-3's feed sector revenue was 17.960 billion yuan, +11.90%, accounting for about 75.05% of revenue and realized profit of about 600 million yuan; the breeding sector revenue was 4.134 billion yuan, +26.4%, accounting for 17.27%, loss of about 900 million yuan; the seed industry sector revenue was 343 million yuan, +63.7%, accounting for 1.43%, loss of about 0.3 billion yuan. The seed industry sector is affected by seasonal factors. The performance is mainly reflected in the fourth quarter. It is expected that the performance for the full year of 2023 will improve significantly. In terms of biological breeding, the company's 3 genetically modified corn varieties and 5 genetically modified soybean varieties passed the preliminary review by the Ministry of Agriculture and Rural Affairs in October 2023. Currently, the company's corn seed industry has formed an industrial chain layout with enterprises such as Fengdu Hi-Tech, Yunnan Datian, Sichuan Chuandan, Inner Mongolia, Menglong in Inner Mongolia, Hongze Jilin, and Jinbeinong, covering major planting regions such as Northeast China, Huanghuaihai, and Southwest China. When the industrialization of biological breeding is officially implemented, the company is expected to be the first to benefit.
The company plans to enhance its core competitiveness through fixed additional financing. In June 2022, the company issued a fixed increase plan to raise no more than 1,943 billion yuan for project financing and additional working capital.
The company plans to use 724 million yuan to raise capital for feed production and processing projects, 98 million yuan for pig breeding and research and development projects, and 461 million yuan to invest 461 million yuan in the construction of the Dabeinong Bio-Agriculture Innovation Park project in Beijing, and 583 million yuan to supplement working capital. Among them, after the implementation of the Dabeinong Bio-Agriculture Innovation Park project, research and development will focus on key core technologies in modern agriculture, such as biological breeding, biological feed, agricultural biologics, agricultural big data, and agricultural artificial intelligence, etc., to comprehensively enhance the company's comprehensive R&D and management capabilities. As of the end of the third quarter of 2023, the company's balance ratio was 63.00%, an increase of 4.72 percentage points over the end of 2022. Currently, the company's fixed increase plan has been approved by the Securities Regulatory Commission. After this fixed increase issuance, it will help the company seize industry opportunities, further enhance the company's long-term core competitiveness and profitability, help the company optimize its capital structure, and improve the company's overall resilience to risks.
Maintain the company's “increase in holdings” investment rating. Considering the impact of swine price fluctuations and the company's asset impairment, the company's net profit for 23/24/25 is estimated to be -288/6.15/908 million yuan, corresponding to EPS of -0.07/0.15/0.22 yuan, respectively. The current stock price corresponding to the price-earnings ratio for 23/24 is 46.61/31.57 times. Considering the growth of the company's seed industry sector, it continues to maintain the company's “increased holdings” investment rating.
Risk warning: raw material prices have fluctuated greatly, pig prices have fluctuated greatly, and the industrialization of biological breeding has fallen short of expectations, etc.