A pioneer in the field of genetically-modified seed industry, mergers and acquisitions, and broadened territory: the company has been deeply involved in the seed industry for more than 20 years, and biological breeding technology has accumulated sparse. Currently, the commercialization process of first-generation genetically-modified products with first-generation traits is leading in the country. First-generation insect-resistant herbicide-resistant corn products and new genetically modified varieties grown in supporting shelters performed well in the pilot and carried out variety certification and publicity, with a first-mover advantage; the company's seed industry revenue increased from 403 million yuan in 2019 to 944 million yuan in 2022, with a compound growth rate of 2.3 million yuan 71%, of which corn In 2022, there was a year-on-year increase of 146.89%. Independent breeding combined with mergers and acquisitions continued to increase market share. With the commercialization of genetically-modified genes and the increase in penetration rates, the company's seed industry is expected to experience a sharp rise in volume and price.
The advantages of increasing feed research and development are obvious, and production capacity optimization and growth can be expected: the feed business is the company's cornerstone business. It has developed steadily over the years, with a differentiated layout of various types such as pig feed, ruminant feed, and aquatic products. The 2016-2022 operating income CAGR was 7.1%, and in 2022 it achieved revenue of 22.29 billion yuan and sales volume of 5.315 million tons. The company's feed positions high-end materials such as premixes and suckling pig feed, leading the industry in average sales price and gross margin, and the gross profit margin of the feed business is 11.52% in 2022. The company's continuous investment in feed research and development is expected to enhance product competitiveness and cost control capabilities; the 2022 fixed increase plan plans to lay out feed production capacity, optimize the overall feed production capacity layout, strengthen industry chain collaboration, and help future growth.
Pig breeding has a steady layout, cost reduction and efficiency, and profit can be expected: the company's pig breeding layout for ten years, multiple rounds of acquisitions in multiple locations, sufficient production capacity reserves, and rapid business development. The number of pigs released in 2018-2022 increased from 1.68 million to 4.43 million, with a target of about 5.5 million heads for 2023. The company has always paid attention to breeding quality and continuously optimized and perfected pig breeding stocks. Currently, it has a production capacity of providing more than 100,000 heads of high-quality breeding pigs per year. As various measures to reduce costs and increase efficiency continue to advance, costs are expected to continue to improve. As the pig cycle gradually enters an upward cycle, the company's breeding business can be expected to be profitable.
Investment suggestions: We expect the company to achieve operating income of 339.9/376.5/41.65 billion yuan in 2023-2025, net profit of 3.8/71/1.04 billion yuan, and net profit of 3.8/71/1.04 billion yuan. The closing price on November 16 corresponding to 2024-2025 PE is 40.77/27.91 times, respectively, covering the first time, giving it an “increase in holdings” rating.
Risk warning: risk of variety promotion falling short of expectations, risk of pests and diseases exceeding expectations, risk of agricultural policy disturbance, risk of product price fluctuations, risk of price fluctuations of feed raw materials, risk of extreme disasters