Overseas business declined, exchange losses increased, and profits were under pressure in the short term. The company achieved operating income of 2.881 billion yuan in the first three quarters of 2024, -14.46%. The main reason was the year-on-year decline in the company's corn seed sales due to increased competition in the domestic and foreign corn industry and continued low food prices; the net profit to the mother was -0.475 billion yuan in the first three quarters of 2024, a year-on-year loss reduction of 17.82%, mainly benefiting from the investment income of Longping Biotech equity transactions; net profit after deducting non-return to mother was -0.874 billion yuan, an increase of 113.21% year-on-year. The main reasons are : (1) The year-on-year decline in main business revenue led to a year-on-year decrease in gross profit; (2) Affected by the Federal Reserve's continuous interest rate hike cycle, foreign exchange rates fluctuated greatly, and exchange losses from medium- to long-term foreign currency loans from overseas subsidiaries increased by 0.307 billion yuan year on year, causing financial expenses to increase significantly compared to the same period last year. On a quarterly basis, the company achieved operating income of 0.299 billion yuan in 2024Q3, -41.33% month-on-month, and -60.27% year-on-year; 2024Q3 achieved net profit to mother -0.587 billion yuan, -1805.18% month-on-month, and -40.49% year-on-year.

Revenue from corn and rice seeds continued to grow during the operating year. According to the 2023/2024 operating year data, the company's total seed revenue was 8.736 billion yuan, +9.55% year over year, and total sales volume was 0.293 billion kg, +6.96% year over year. By variety, corn seed sales revenue was 5.492 billion yuan, +8.83% YoY, accounting for 62.87%; sales volume was 0.18 billion kg, +9.82% YoY; rice seed sales revenue was 1.938 billion yuan, +22.11% YoY, accounting for 22.18%, and sales volume was 53.8825 million kg, +15.87% YoY. The company's contract debt at the end of 2024Q3 was 3.87 billion yuan, +14.82% year-on-year. Pre-sale payments for seeds continued to grow, and sales revenue for the new season is expected to continue to grow.

Expenses have increased significantly, and net interest rates are under pressure in the short term. The company's 2024Q1-Q3 sales expenses were 0.493 billion yuan, +10.91% YoY, corresponding sales expense ratio 17.10% (YoY +3.35pct); 2024Q1-Q3 management expenses 0.651 billion yuan, YoY -15.24%, corresponding management expense ratio 22.61% (YoY +8.07pct); 2024Q1-Q3 R&D expenses were 0.44 billion yuan, +9.19% YoY, corresponding R&D expenditure rate 21.25% (YoY + 5.72pct); The 2024Q1-Q3 financial expense ratio was 0.609 billion yuan, +73.03%, corresponding to a financial expense ratio of 21.15% (+11.23pct year over year). The main reason was due to the impact of the Federal Reserve's continuous interest rate hike cycle. Foreign exchange rates fluctuated greatly, and exchange losses due to medium- to long-term foreign currency loans from overseas subsidiaries increased a lot year-on-year. Affected by the increase in the expense ratio, the company's gross margin for 2024Q1-Q3 was -12.56pct to 28.24% year over year, but net margin was -6.68pct to -29.72% yoy.

Risk warning: Breeding risks caused by bad weather; implementation of genetically-modified policies falls short of expectations.

Investment advice: As a leading domestic corn seed, the company has both advantages in variety and properties. In the future, as the penetration rate of genetically modified corn increases, the corn seed business is expected to experience a double impact in quantitative profit. Considering the impact of current exchange losses, we lowered the company's 2024-2026 net profit forecast to 0.37/0.62/0.73 billion yuan (originally 0.51/0.63/0.73 billion yuan), and the 2024-2026 earnings per share were 0.28/0.47/0.55 yuan, corresponding to the current stock price PE of 40/23/20X, maintaining the “superior to the market” rating.