Event: The company's 2024H1 revenue -15.6%, net profit to mother -29.3%; 2024Q2 revenue -20.5%, net profit to mother -24.3%. 2024H1 achieved operating income of 0.41 billion yuan and net profit of 52.74 million yuan; 2024Q2 achieved operating income of 0.18 billion yuan and net profit of 22.6 million yuan to mother.

The company's 2024H1 sales gross profit margin and net margin both declined. 2024H1 gross margin was 25.4% (-3.5pcts year over year). The cost rate for the period was 24.1%, of which the sales expense ratio was 7.1% (+0.6pcts year over year); the management expense ratio was 11.4% (+0.9pcts year over year); the R&D expense ratio was 9.2% (+2.7 pcts year over year); and the net sales margin was 11.7% (-3.8pcts year over year). 2024Q2 gross margin was 24.5% (-0.3 pcts year over year), sales expense ratio 8.9% (yoy +2.1pcts); management expenses 11.8% (yoy +0.9 pcts); R&D expenses ratio 14.2% (yoy +5.9pcts); net sales margin was 9.0% (-2.2pcts yoy). During the reporting period, the domestic corn seed market was still fiercely competitive due to the large number of certified varieties and high degree of homogenization. Some regions also reduced the area under corn cultivation by increasing the area under cultivation of other cash crops. At the end of June, the return volume of corn varieties increased, causing short-term pressure on performance.

The gross margin of 2024H1 corn has declined, and the scale of rice has increased significantly. By category, 1) corn seed revenue was 0.38 billion yuan (-15.4% year over year), gross profit margin was 25.2%, down 3.0 pcts year on year; 2) wheat revenue was 1.409 million yuan (YoY -1.7%); 3) rice revenue 6.077 million yuan (YoY +82.6%); 4) Vegetable seed revenue was 10.738 million yuan (YoY -10.6%); 5) Revenue of 1.997 million yuan (YoY +8.8%). By region, 1) Northern revenue was 0.38 billion yuan (YoY -12.3%); 2) Southern revenue was 25.71 million yuan (YoY -46.1%). During the reporting period, new progress was made in genetically modified breeding. On March 19, the Ministry of Agriculture and Rural Affairs website published a public list of 30 genetically-modified corn and soybean varieties. The company's genetically modified varieties Denghai 533K, Denghai 685D, and Denghai 710D were listed among them. It is expected that the commercialization process of genetically modified genes will accelerate, and leading companies will benefit first.

Investment advice: After 50 years of continuous research and development innovation and high yield research in corn breeding, the company will improve its future variety reserves and lay out the direction of biological breeding ahead of schedule, and it is expected that priority will benefit from commercialization of genetically modified genes. We expect the company's net profit to be 0.252 billion yuan, 0.284 billion yuan, and 0.336 billion yuan respectively in 2024-2026. EPS was 0.29 yuan, 0.32 yuan, and 0.38 yuan respectively. The closing price on August 30 was 28, 25, and 21 times PE, respectively, maintaining the “gain” rating.

Risk warning: risk of agricultural product price fluctuations due to natural disasters, risk of diseases and pests exceeding expectations, risk of worsening international conditions affecting agricultural product circulation, risk of product promotion falling short of expectations, risk of agricultural policy disturbances