Incidents:
The company released its 2023 annual report. In 2023, we achieved operating income of 1,552 billion yuan, an increase of 17.06% year on year; net profit attributable to shareholders of listed companies was 256 million yuan, an increase of 1.01% year on year.
The company's revenue grew steadily, and seed sales increased in the new season
The company's revenue in 2023 increased 17.06% year-on-year, of which 87.23% of revenue came from the corn business. The steady growth of the corn seed business benefited from a 17.88% increase in seed sales in the new season, and the corn business achieved revenue of 1,354 billion yuan, +15.25% over the same period last year. The wheat and rice seed business achieved rapid development. The wheat seed business achieved revenue of 111 million yuan, +25.23% year over year; the rice seed business achieved revenue of 45 million yuan, +69.13% year over year. The company achieved profit in 2023, but production costs such as corn were still rising, so the overall gross margin decreased by 3.12 pct year on year, and the gross margin of the corn seed business decreased by 4.07 pct year on year.
The approval of the new variety has been successfully passed, and it is expected that the commercialized genetically-modified countries attach great importance to food security, and the seed industry and breeding industry have a high level of policy support. Central Committee Paper No. 1 of 2023 points to accelerate the pace of industrialization of corn biological breeding. The domestic seed industry continues to maintain a good development trend. Domestic corn commercial food prices are relatively stable, and demand for corn cultivation is quite strong. The company continues to increase investment in R&D, actively explore the market, and take advantage of the “Denghai” brand. The number of new types of independent intellectual property approved has increased markedly. In 2023, the company passed national certification for 16 new corn varieties, including Denghai 605D and Denghai 533D, and the new wheat variety Denghai 217.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 1,797/2,383 billion yuan, with year-on-year growth rates of 15.78%/15.35%/14.98%, respectively, and net profit to mother of 2.90/3.79/426 million yuan respectively, with year-on-year growth rates of 13.53%/30.66%/12.18%, and EPS 0.33/0.43/0.48 yuan/share respectively. As a leading corn seed, the company is expected to benefit from commercialization of genetically modified corn, so it is recommended to keep an eye on it.
Risk warning: risk of corn price fluctuations, failure to advance genetically modified as expected, risk of a sharp rise in seed production costs, extreme weather risk