The 2023 results are in line with the express report and meet our expectations

Tsukin Bank Hi-Tech announced its 2023 results: revenue for 2013 +17.5% YoY to $4.10 billion, net profit to mother +17.4%/+32.7% YoY to $27/230 million, respectively; of these, 4Q23 revenue +30.4% YoY to $2.55 billion, and net profit to mother +3.46% YoY to $260 million; the results are in line with the rapid report and are in line with our expectations. The company has outstanding variety performance, strengthened marketing, and combined with the new era in Hebei. “endogenous+extension” jointly drives the seed business to achieve steady growth in sales and revenue.

Development trends

The main rice industry is growing steadily, and domestic income from corn, wheat and overseas is growing rapidly. 1) Seed industry: In 23 years, the company strengthened marketing on the basis of high-quality varieties. Seed sales were +33.0% to 200 million kg, of which rice/corn/wheat ratio was +17.4%/+29.9%/+42.6%; seed industry revenue was +21.7% YoY to 2.84 billion yuan, of which rice/corn/wheat ratio +14.2%/+45.3%/+34.6%. In addition, the company implemented the Philippine market layout in 23, and steadily promoted projects such as agricultural technology aid to Mali. Overseas sales reached a record high. The number of exported seeds was +33.0% to 11.08 million kg, and overseas revenue was +32.7% to 290 million yuan compared to the same period last year. 2) Contract agriculture: The expansion rate of contract farming has slowed, with revenue of -7.6% to 830 million yuan in 23 years, of which -8.4%/-2.3% of which ordered food/silage is -8.4%/-2.3%. We believe that the main reason is that the companies' food order cooperation projects are stable, and downstream demand for silage is relatively weak.

Expense investment has increased, the impact of impairment has weakened, and overall profitability has stabilized. 1) Gross profit margin: the company's gross margin for 23 years +0.1ppt to 26.7%; 2) Expense ratio: Expense rate +0.6ppt to 18.1% year over the 23-year period, meaning that the company increased investment in marketing and R&D, and the sales/R&D expense ratio was +0.5/+0.3ppt; 3) Impairment: 23-year asset/credit impairment loss -61.0%/-1.6% to 0.2/0.3 billion yuan. This year, the company's overall profitability was reduced due to cotton price drops; 4) Under comprehensive influence, the company's overall profitability was reduced. Stable, net interest rate remained flat at 6.7% year over year in '23.

The advantages of rice continue to strengthen, and the layout of genetically modified and conventional corn, and overseas market development are progressing rapidly. 1) Traditional seed industry: The company's rice seed industry has both variety and marketing advantages. We are optimistic about the steady increase in the market share of major domestic varieties and the space for developing new markets such as overseas Central Asia; the corn seed industry is driven by “endogenous+epitaxial”, the acquisition of Hebei New Era in 23 years, and 8/16 new varieties have passed national/provincial approvals, and the variety reserves and regional layout can be expected to be enhanced. 2) Biological breeding: The 3 genetically-modified corn varieties that the company participated in the application were approved and publicized; at the same time, the company actively cooperated with major shareholders in biological breeding research and development. We believe that the company's dual layout in the traditional seed industry and biological breeding will help achieve the goal of entering the top ten global seed industry and the top three corn seeds in the country in 25 years.

Profit forecasting and valuation

The current stock price corresponds to 24/25 23/19 times P/E. We kept our net profit of 33/410 million yuan unchanged in 24/25. Considering the rapid progress of the company's overseas and genetically-modified layout, we raised the target price by 11% to 10.5 yuan. The target price corresponds to 30 times P/E in 24 years, with 29% upward space. Maintain outperforming industry ratings.

risks

Competition in the industry; intellectual property disputes; risk of contract farming operations; promotion of overseas projects fell short of expectations.