Event: The company's H1 revenue in 2023 was +11.9%, net profit was +29.3%; 2023Q2 revenue was -11.9%, and net profit was -19.5%. The company achieved revenue of 1.08 billion yuan (+11.9% year on year) and net profit of 39.42 million yuan (+29.3% year on year) in 2023 H1. 2023Q2 achieved operating income of 460 million yuan and net profit of 8.1 million yuan; 23Q1/23Q2's quarterly revenue was +40.2%/-11.9%, and net profit was +53.4%/-19.5%.
Gross sales margin increased in the first half of 2023, and net interest rate remained stable. H1 gross margin in 2023 was 24.8% (+3.9 pcts year on year). The cost rate for the period was 20.2%, of which the sales expense rate was 9.6% (YoY +2.2 pcts); the management expense rate was 6.9% (YoY +0.8 pcts); the R&D expense ratio was 3.0% (YoY +0.2 pcts); the financial expense ratio was 0.7% (+0.14 pcts); and the net sales interest rate was 5.9% (YoY +2.2 pcts). The gross margin for 2023Q2 was 27.3% (YoY +9.0pcts); Sales Expense Ratio 12.5% (YoY +4.9%); Management Expense Ratio 8.9% (YoY +2.7pcts); R&D Expense Ratio 3.3% (YoY +1.0pcts); Net Sales Interest Rate was 5.7% (YoY +4.5pcts).
The corn and lint business is growing rapidly, and revenue in the northwest region has increased markedly. By product, 1) 2023H1 rice's revenue was 330 million yuan (-14.7% year-on-year), mainly because the planting period experienced water conversion and drought in some regions and the intensification of the trend of small fields becoming fields, which led to the return of certain rice seeds. However, gross margin was 40.0%, up 3.6 pcts year on year; 2) Ordered grain business achieved sales revenue of 230 million yuan (-29.5% year on year), accounting for 21.0% and gross margin of 5.2%; 3) Corn achieved revenue of 130 million yuan (+71.5%), accounting for 12.3%, gross margin of 38.4%, up 4.8 pcts year on year; 4) Lint business revenue was 220 million yuan, high year on year. Gross margin was 6.0% (+7.4 pcts year on year), accounting for 20.7%. The company's hybrid corn and cotton varieties have performed well in the market, and marketing efforts have continued to increase. Increased market share is the main factor in performance growth. By region, 1) East China was the main region, achieving revenue of 4.3 billion yuan, -15.5%, accounting for 40.3%; 2) Central China and Northwest China made concerted efforts to achieve revenue of 17/230 million yuan, respectively, or +51.1%/92.3%.
The company's scientific research capabilities are constantly improving, and it is developing simultaneously at home and abroad. 2023H1 and its holding subsidiaries added 6 hybrid rice varieties and 9 provincially approved wheat varieties through independent or cooperative breeding methods.
At the same time, the company adheres to the “internal and external” strategy, actively lays out in major domestic crop cultivation regions, and continuously expands its market share. It is also actively expanding in crop seed exports, overseas agricultural technology development and services, overseas testing and promotion of new varieties, and promotion of new overseas varieties, and promotion of localized operations. It has accumulated rich experience and achieved remarkable results.
Use Syngenta to promote the industrial application of biological breeding. In the field of biological breeding, as an important member of Syngenta's seed industry sector, the company actively develops research and development and cooperation in biological breeding technology. Currently, Syngenta has obtained 3 agricultural genetically-modified biosafety certificates, namely herbicide-resistant corn GA21, insecticide-resistant herbicide-resistant corn BT11×Ga21, and insect-resistant herbicide-resistant corn BT11×miR162 × GA21. Among them, the “trivalent” series of genes is currently at the forefront of the country, has good field results, and has strong market competitiveness.
Investment suggestions: The company is a leader in “cultivating and promoting integration” in the seed industry. It consolidates the foundation of development by strengthening R&D investment and cooperation between science and technology enterprises, and lays out business diversified through extended mergers and acquisitions, and opens up space for future growth. We expect the company to achieve total operating income of 4178/49.82/5.964 billion yuan and net profit of 278/344/419 million yuan in 2023-2025. The corresponding PE was 36/29/24 times, respectively, maintaining the “increase in holdings” rating.
Risk warning: risk of agricultural product prices fluctuating due to natural disasters, risk of pests and diseases exceeding expectations, risk of worsening international conditions affecting agricultural product circulation, risk of variety promotion falling short of expectations, risk of agricultural policy disturbance