The company's off-season revenue and profits are currently declining, but in terms of the sales season, Denghai's total revenue, especially corn seed sales, has recorded an increase. The overall performance is superior to the industry, and the advantages of leading varieties are obvious.
Revenue and profit declined in the off-season, and the leading edge of the 23/24 sales season remained. In the first half of 2024, the company achieved operating income of 0.408 billion yuan, -15.6% year-on-year; attributable net profit of 0.053 billion yuan, -29.3% year-on-year, EPS 0.06 yuan. Among them, 24Q2 achieved revenue of 0.175 billion yuan, -20.5% year on year; attributable net profit of 0.023 billion yuan, -24% year over year, and EPS 0.03 yuan. 24H1's revenue and profit declined year-on-year: on the one hand, due to a significant increase in seed shipments in the 2023/24 sales season in 23Q4, and on the other hand, due to increased corn seed returns at the end of Q2; in addition, competition in the industry intensified this year, and the company increased its marketing investment, and the cost rate increased compared to the previous year. Despite a 15% year-on-year decline in the company's corn seed sales in the first half of the year, gross margin fell 3.03 pct. However, judging from the sales quarter perspective, the company is still bucking the trend. The company is expected to achieve revenue of 1.47 billion yuan in 2023/24, +7.8% year-on-year, and attributable net profit of 0.23 billion yuan, or +8% year-on-year. Among them, corn seed sales increased 6% to 1.285 billion yuan this season, and gross margin fell 1.3 pct to 28.3%.
The supply of corn in the new season is unspeakably relaxed, and the hybrid corn seed industry can be expected to prosper. Due to frequent extreme weather during this year's planting season, production of some crops was affected, and the supply of corn in the new season is unspeakably relaxed. It is expected that domestic corn prices will maintain in 2024, and weak supply and strong demand in Q3 are expected to drive the corn price center to rise upward. Currently, farmers' income from planting is quite impressive, and the area they are willing to grow corn has increased or boosted the seed industry. Second, the cost of growing corn will decrease in 2024, which may lead to an improvement in the profits of listed breeding companies; high-quality hybrid corn seeds are also expected to achieve high quality and high prices.
Optimistic about the medium- to long-term development prospects of the Denghai seed industry. Based on: 1) In recent years, under extreme climate tests, farmers prefer superior varieties with good stress resistance; varieties such as Denghai 605 and Denghai 618 cultivated independently by Denghai have high resistance to rust, and their field performance has been recognized by farmers. 2) The company rationally arranges seed production to further reduce production costs, and the profit level is expected to improve significantly. 3) Biological breeding may enter a new stage of market-based industrialization in 2024. The general trend of industry transformation has begun. In the future, as the penetration rate of genetically-modified genes continues to increase, the market share of R&D seed companies is expected to increase at an accelerated pace.
Maintain a “Highly Recommended” investment rating. Denghai's dominant varieties have a good market base. The parent company continues to gain strength, and the subsidiary's performance exceeds expectations. The country's policy attitude to support the seed industry is clear. Industrialization of genetically modified genes is being actively promoted, and leading R&D seed companies are expected to fully benefit. Considering frequent extreme climates in 2024, the core varieties of Denghai are highly resistant to rust, and are expected to continue to be released. EPS is expected to be 0.36/0.45/0.57 yuan in 2024-2026, maintaining the “Highly Recommended” investment rating.
Risk warning: The promotion of new varieties falls short of expectations; unforeseen pests or extreme weather; the crackdown on infringement in the seed industry is insufficient; progress in commercializing genetically-modified genes falls short of expectations.