1Q24 net profit from mother/after deduction +8.6/ +10.4% month-on-month, in line with our expectations
Suken Agricultural Development announced 1Q24 results: 1Q24 revenue -4.8% year-on-year to 2.34 billion yuan, and net profit attributable to mother/non-deducted mother +8.6/ +10.4% year-on-year to 1.3/10 billion yuan. The results are in line with our expectations. We believe that the decline in revenue may be due to the year-on-year decline in the prices of wheat and cooking oil in 1Q24, and the increase in profit mainly benefited from the sharp rise in the sales volume and price of corn in 1Q24.
Development trends
Food storage sales are progressing smoothly, helping the company's performance to grow steadily. 1) Planting industry: Rice sales volume and price have risen sharply, wheat has shrunk slightly, and the contribution of corn has increased. The sales volume and price of 1Q24 rice rose sharply, with export sales volume +39.1% to 49,600 tons, and according to Huiyi.com, the average price of 1Q24 japonica rice was +3.7%; wheat sales volume was -3.1% to 101,000 tons. We think the company may be actively controlling the sales pace in the face of sluggish prices; in addition, corn export sales increased by +134.7% to 23,900 tons year-on-year, mainly due to the year-on-year increase in corn production in 23. 2) Seed industry: Sales of rice varieties are progressing smoothly, and sales of wheat seeds fluctuate during the off-season. In 1Q24, the export sales volume of rice varieties was +36.5% year-on-year to 37,400 tons, mainly benefiting from the relatively good performance of the price of japonica rice; the scale of export sales of wheat seeds was small during the off-season, and there was a year-on-year decline. 3) Processing industry: Edible oil sales increased and decreased, and rice sales grew steadily. 1Q24 edible oil export sales were +22.5% to 66,900 tons. We believe that although the price of refined oil products continues to be low, the company's high inventory costs have declined, and the degree of pressure on edible oil profits may improve; 1Q24 rice export sales were +4.7% year-on-year to 77,800 tons, and growth remained steady.
Benefiting from a sharp increase in the volume and price of rice, overall profitability improved month-on-month. 1) Gross profit margin: 1Q24's gross margin was +1.0ppt to 13.7% year-on-year. We think it mainly benefited from the sharp increase in rice sales volume and price in 1Q24.
2) Expense ratio: 1Q24 sales/management (including R&D) /finance expense ratios were flat year-on-year /+0.4pp/ -0.1ppt to 1.7%/5.4%/2.4%, respectively. The management expense ratio increased or decreased due to a decline in revenue scale, and the decrease in financial expenses was due to a decrease in interest expenses. 3) Other revenue: Other revenue in 1Q24 was -26.4% year-on-year to $0.24 billion. We expect short-term fluctuations due to receiving government subsidies during the quarter. 4) Under the combined influence, the company's profitability improved month-on-month, and the net profit margin for 1Q24 was +0.7ppt to 5.5% year-on-year.
The main planting business can be expected to develop steadily, and the entire industry chain explores space in a closed loop. 1) In the short term: We judge that the domestic food supply is relaxed this year, and the price of rice and wheat may be weak, but the company is still expected to benefit from falling pesticide and fertilizer prices and reducing internal costs and increasing efficiency to achieve steady growth in the main growing industry. 2) Long-term perspective: On the one hand, the company is actively promoting a pilot integrated expansion development strategy. We believe it is expected to gradually form a closed loop of “seeds and agricultural supply+technical service+product recycling” to explore new growth points; on the other hand, the company's various industrial chain subsidiaries have actively promoted capacity expansion and resource integration in recent years, and endogenous and epitaxial development can be expected.
Profit forecasting and valuation
The current stock price corresponds to 24/25 16/15 times P/E. We maintain our 24/25 net profit forecast of 88/970 million yuan, and maintain a target price of 12.5 yuan, corresponding to 19/18 times P/E in 24/25, with room for an increase of 18%, and maintain an outperforming industry rating.
risks
Natural disasters; food price fluctuations; product quality risks; changes in land circulation and government subsidy policies.