1H23/2Q23 net profit was +29.3%/-19.5%, in line with expectations. In line with expectations, Quanyin Hi-Tech announced 1H23 results: 1H23 revenue +11.9% to 1,080 million yuan, net profit to +29.3% to 39 million yuan; of these, 2Q23 revenue was -11.9% to 462 million yuan, and net profit was -19.5% to 08 billion yuan. The company's performance was in line with our expectations. The rapid year-on-year increase in 1H23 performance was mainly due to the company's good sales performance of hybrid corn and cotton varieties; 2Q23 performance declined year-on-year, but because 2Q was a low season for sales in the seed industry, the revenue and performance share in a single quarter were low in history.
Development trends
Sales in the corn seed and lint business are improving, and the gross margin of rice seeds has improved. 1) Corn seeds:
1H23's corn seed revenue was +71% year-on-year to 130 million yuan, and gross margin was +4.8 ppt year. We think the company's corn varieties performed well in the first half of the year, superimposed and contributed, and the market share increased; 2) Lint and cotton seeds: 1H23's lint and cotton seeds: 1H23's lint and cotton seed revenue was +757%/+55% to 2.2/0.7 billion yuan, and the gross margin of lint cotton was +7.4ppt year-on-year. We think this year's cotton varieties performed well; 3) Rice seeds: 1H23 Revenue YoY -15% to 330 million yuan. We think it is a decline in rice planting area due to the drought in the south. The company insists on high quality and price, with a gross margin of +3.6 ppt; 4) Ordered food: 1H23 The company's order grain revenue was -29% to 230 million yuan over the same period, and the gross margin was +0.7 ppt year-on-year. We think it was mainly due to sales restructuring.
Compensation and depreciation raise the expense ratio, and profitability is relatively stable. 1) Gross profit margin: 1H23/2Q23 The company's gross margin was +3.9/+8.9ppt year on year to 24.4%/27.0%, respectively. We believe it mainly benefited from the increase in seed prices this year; 2) Expense ratio: 1H23 The company's expense ratio increased, and the sales/management (including R&D) /financial expense ratio was +2.2/+1.0/+0.1ppt to 9.6%/9.9%/0.7%, respectively. Of these, 2Q23 was +4.9/+3.6/0.2ppt, respectively. Increased pay and increased depreciation due to mergers and acquisitions had a combined impact. Based on this, the company's 1H23/2Q23 net interest rate was +0.5/-0.2ppt to 3.7%/1.8% year-on-year, respectively. We believe that profitability is relatively stable.
The company is expected to maintain a good growth rate throughout 2023 and is optimistic about long-term development. Looking at the short term, we believe that the selling points of the company's rice varieties are outstanding. It is expected that with the peak sales season in the second half of the year, rice seed sales will resume their growth trend; at the same time, we expect that the company's relatively good corn seed growth rate will continue in the first half of the year, and that Hebei's new era will also contribute to increased performance, and high growth can be expected throughout the year. Looking at the long term, on the one hand, we are optimistic about the company's dual advantages in variety and marketing. We expect that the market share of rice seeds will still increase, and corn seeds are also expected to maintain rapid endogenous and epitaxial growth; on the other hand, the industrialization of domestic corn biological breeding is progressing in an orderly manner. We believe that collaboration between the company and major shareholders in the genetically modified business is also expected to help long-term growth.
Profit forecasting and valuation
The current stock price corresponds to 2023/24 36/28 times P/E. We maintained net profit of 273/354 million yuan and target price of 13.5 million yuan in 2023/24, corresponding to 47/36 times P/E in 2023/24, which is 29% upward from the current price. Maintain outperforming industry ratings.
risks
Competition in the industry; intellectual property disputes; risk of contract farming operations; promotion of overseas projects fell short of expectations.