Incident: The company recently released its 2023 annual report. In 2023, we achieved revenue of 1,552 billion yuan, an increase of 17.06%; net profit to mother was 256 million yuan, an increase of 1.01%; of these, Q4 achieved revenue of 898 million yuan in a single quarter, an increase of 17.84%; and net profit to mother of 160 million yuan, an increase of 13.85%. In 2023, net profit after deduction was 177 million yuan, an increase of 9.35 million yuan. Basic earnings per share were $0.29, and the weighted average ROE was 7.43%. The reviews are as follows:
The main business grew well, improving overall performance. In 2023, the company's corn seed business achieved revenue of 1,353 billion yuan, an increase of 15.25%, accounting for 87.23% of total revenue. Among them, the important subsidiary Denghai Pioneer achieved revenue of 274 million yuan, an increase of 26%; the parent company achieved revenue of 615 million yuan, an increase of 3.28%; and subsidiaries other than Denghai Pioneer achieved revenue of 463 million yuan, an increase of 28.65%.
There are two main reasons for the revenue growth of Denghai Pioneer, its parent company, and subsidiaries other than Denghai Pioneer: 1) benefiting from the recovery in downstream demand and the strong competitiveness of its products, sales of Denghai series products increased significantly compared to the same period of the previous year; 2) the rise in corn prices was transmitted to seeds, causing product prices to rise compared to the same period of the previous year. Growth in the main business led to overall revenue and profit growth. The increase in profit was lower than the increase in revenue, mainly due to the decline in gross margin of the main business. In 2023, the gross margin of the corn seed business was 29.39%, down 2.5 percentage points from the previous year. The decline in gross margin was mainly due to the rapid rise in production costs driven by the rise in corn prices in the previous period. Since 2023, the trend of falling back from high corn prices is quite obvious, and production costs are expected to decrease in 2024.
The advantages of variety resources are outstanding. In 2023, many new varieties were approved by the national review, and the advantages of the variety portfolio were enhanced. In 2023, 14 new corn varieties developed independently by the company, including Denghai 1868, were reviewed and approved by the 5th National Crop Variety Certification Committee. Denghai 605D and 533D have been approved by the 4th meeting of the 5th National Crop Variety Validation Committee. In addition, the new wheat variety Denghai 217 has also passed national certification. As these new varieties are approved for sale one after another, the product matrix will be effectively expanded, and the company's portfolio advantage in the seed industry will be further enhanced in the future.
The company is one of the core leaders in the domestic corn seed industry. It has obvious advantages in germplasm resources and is rated as an increase in holdings. The company has accumulated rich germplasm resources, and its resource and variety advantages are very obvious. In 2020, the China Seed Association selected 20 “Hall of Honor” corn varieties from more than 16,000 corn varieties promoted in the past 40 years using the annual promotion area and cumulative promotion area. The company's self-raised five corn varieties, Yedan No. 12, Yedan No. 13, Yedan No. 19, and Denghai 605, were selected, which are the units with the largest number of varieties selected. In October 2021, 478, Ye 107, DH382, DH351, Ye 52106, 8001, 515, and DH65232 corn interbreeding lines selected by the company were selected as “National Outstanding Contributing Maize Inbred Lines” issued by the 29th China Beijing Seed Industry Conference, accounting for 14.55% of the total. In March 2024, the China Seed Association announced the results of “Looking for High-Yield Corn in 2023” at the 2024 China Seed (Nanfan Silicon Valley) Conference, and Denghai 605 was selected. In recent years, the number of new varieties with independent intellectual property rights and strong market competitiveness that the company has approved has increased markedly, and the variety reserves are reasonable, injecting new impetus into the continuous growth and healthy development of the company's performance. We believe that the company's long-term competitive advantage in terms of germplasm resources and breeding technology is still difficult to surpass, giving it a “buy” rating. The company's net profit for 24/25/26 is estimated to be 278/3.95/492 million yuan. According to the 24-year performance, 45 times PE will be given. The target price for the next 6 months is 14.15 yuan, and there is room for 40+% from the current price.
Risk warning: The seed market fluctuates greatly, causing product prices to rise less than expected