Revenue continues to grow, and gross margins are under pressure. The company achieved revenue of 1,552 billion yuan in 2023, +17.06% year-on-year, mainly because domestic commercial grain prices and agricultural welfare policies supported farmers' enthusiasm to grow food. The company's seed sales volume in 2023 was +22.29% year-on-year. The company achieved net profit of 256 million yuan in 2023, +1.01% over the same period last year, mainly due to increased competition in the domestic corn seed market and an increase in production costs, which led to the company's overall gross margin of -2.51 pct to 28.77% year on year.

Revenue from corn seeds increased but gross margins declined. (1) Corn seeds: Achieved revenue of 1,354 billion yuan in 2023, +15.23% year on year, gross margin of 29.17%, -4.02pct year on year. (2) Other seeds: Wheat seeds achieved revenue of 111 million yuan, +25.23% year-on-year. Vegetable seeds achieved revenue of 143.12,800 yuan, -6.04% year-on-year; flower seeds achieved revenue of 1.888,700 yuan, +7.21% year-on-year.

The pattern of corn supply and demand changed from tight to loose, and domestic corn prices bottomed out. According to the US Department of Agriculture's latest April estimate, global corn production in 2023/24 is expected to increase by 70.12 million tons to 1,228 million tons compared to 2022/23, the final inventory volume will increase by 16.09 million tons to 318 million tons, and the warehouse sales ratio will increase 0.36 pcts to 26.27%. Global corn supply and demand will weakly fluctuate during the year, and the contraction in farmers' planting income may put pressure on the company's corn seed business growth rate in the short term.

The company has sufficient reserves of high-quality corn varieties and is expected to fully benefit from the implementation of genetically-modified organisms. After nearly 50 years of corn breeding innovation and high yield research, the company completed the progressive replacement of 5th generation corn hybrids represented by Yedan No. 2, Yedan No. 6, Yedan No. 13, Denghai 661, Denghai 605, and Denghai 618, leading the development direction of hybrid corn in China. Existing varieties are rich in reserves, high yield and high resistance characteristics. The total sales volume of the company's hybrid corn in 2022 ranked 2nd in China. Denghai 605 and Xianyu 335 ranked 5th and 8th in the national promotion area of corn varieties. At present, the company has carried out in-depth cooperation with advanced domestic genetically-modified traits companies such as Dabeinong, and its 6 genetically-modified corn varieties have passed the preliminary review. In the future, it is expected that with its first-mover advantage and R&D strength, it will continue to lead the upgrading of varieties after the implementation of genetically modified genes, thereby sharing the dividends of the industry's growth.

Risk warning: Breeding risks caused by bad weather; GM promotion falls short of expectations.

Investment advice: Considering that falling corn prices may put pressure on the company's corn business growth rate in the short term, we adjusted the company's 2024-2025 net profit forecast to be 27/320 million yuan (originally 30/330 million yuan), and forecast net profit to 2026 to be 370 million yuan, corresponding to earnings per share of 0.31/0.36/0.42 yuan. Corresponding to the current stock price PE is 31.3/26.5/22.8X, maintaining a “buy” rating.