Order agriculture and exports increased year-on-year, and the decline in gross margin and depreciation measures dragged down performance. Driven by the growth of contract agriculture and export business, the company's 24H1 revenue was +31% year-on-year. Net profit to mother may have been pressured by rising costs of rice cultivation and changes in revenue structure. Considering that the revenue and profit confirmation of various enterprises are generally in Q4, we believe that the company's active promotion of R&D innovation, variety structure optimization, etc. may be expected to drive a high increase in the company's 24Q3 advance payments, which in turn will drive 24Q4 profit and revenue growth. We maintain our profit forecast. We expect the company to achieve net profit of 0.378/0.502/0.59 billion yuan in 24-26. Refer to the company's 24E average valuation of 38XPE. Considering that the competitive pattern on the seed side is more fragmented than the character side, the company will be given 20 times PE in 2024, with a target price of 8 yuan to maintain a “buy” rating.

Order agriculture and exports increased year-on-year, with declining gross margin & impairment accounting dragged down performance 24H1 to achieve revenue of 1.41 billion yuan, +31% year over year; realized net profit to mother -0.022 billion yuan, turning loss year on year; of these, revenue for the second quarter was 0.738 billion yuan, +59% year over year, and +10% month-on-month; realized net profit to mother -0.04 billion yuan, turning losses year on year. By product, export orders led to the company's revenue of rice seeds +14%; contract farming achieved revenue of 0.48 billion yuan, +112% year over year. Revenue growth was under pressure due to falling lint seed prices, and revenue growth was under pressure, -9.5% year over year. By region, the company performed well in North China and abroad, with revenue doubling. In terms of gross margin, 24H1's gross margin of rice seeds was -8.8 pct year-on-year, or the effect of rising production costs. At the same time, the company's gross margin level for agricultural orders fell again at a low level. The company's 24H1 gross margin declined due to rising production costs and changes in the business structure. The 24H1 company's gross profit margin was 17.6%, -7.2 pct year on year. Considering the impact of falling prices such as lint seeds, the company calculated asset impairment losses of 14.38 million yuan, an increase of 13.76 million yuan over the previous year.

Focus on the development of the traditional seed industry and take advantage of commercialization of genetically modified genes

The company's rice seed industry has multiple advantages such as variety innovation and marketing. The domestic market share of the main varieties is expected to rise. At the same time, the company is accelerating the expansion of corn (also showing the new era of Hebei) and wheat seeds through epitaxial mergers and acquisitions, which in turn promote seed sales due to the rapid development of contract agriculture. The company adheres to scientific research. 24H1 added 4/19/12/5 new nationally reviewed hybrid rice varieties/provincially-approved hybrid rice varieties/provincial-approved wheat varieties. 24H1 invested 38.29 million yuan in R&D expenses, +19% over the same period, and the R&D cost rate was 2.71%, or -0.26pct year-on-year. In the field of genetically-modified genes, the company's backing from Syngenta has considerable advantages, and there is plenty of room for future development.

Target price of 8.0 yuan, maintaining “buy” rating

We maintain our profit forecast. We expect the company to achieve net profit of 0.378/0.502/0.59 billion yuan in 24-26, and EPS of 0.40/0.53/0.62 yuan respectively. Referring to 2024, which is 38 times the average PE average compared to the company Wind's consensus expectation, considering that the competitive pattern on the seed side is more scattered than on the character side, the company will be given 20 times PE and a target price of 8 yuan in 2024, maintaining a “buy” rating.

Risk warning: The promotion progress of genetically-modified varieties/seed industry supervision/food price performance fell short of expectations, and serious natural disasters occurred.