Leading enterprises in the entire agricultural industry chain. Performance is expected to resume growth after food prices recover, maintaining a “buy” rating

2024Q1-3's revenue was 7.452 billion yuan, -13.55% year over year, and net profit to mother was 0.456 billion yuan, -14.02% year over year. Domestic wheat prices continued to fall, and the company's profit margin narrowed. Profit and loss from changes in the fair value of the company's financial assets and profit and loss of 39.92 million yuan from the disposal of financial assets, and a government subsidy of 21.49 million yuan. After excluding irregularities, non-net profit of 0.408 billion yuan was deducted, or -9.88% over the same period last year. 2024Q3's revenue was 2.395 billion yuan, -28.12% year over year, net profit to mother 0.161 billion yuan, or -35.30% year-on-year, after deducting non-net profit of 0.152 billion yuan, or -33.91%. Considering the continued decline in domestic wheat prices and the pressure on the company's wheat and wheat seed business, we lowered our profit forecast. We expect the company's net profit to be 0.766/0.878/0.997 billion yuan (previous value 0.908/1.112 billion yuan) in 2024-2026, corresponding EPS is 0.56/0.64/0.72 yuan, and the current stock price corresponding PE is 18.4/16.1/14.1 times. Considering that wheat prices have fallen to a relatively low level, and there is a minimum purchase price support. It is expected to continue Prices are expected to pick up, and after the recovery in food prices, the leading high-quality performance is expected to take the lead in recovering and maintain the “buy” rating.

Adhere to agricultural science and technology innovation as the core, continue to increase scientific research efforts and consolidate brand advantages

(1) Research and development efforts continued to be strengthened, and the cost rate increased during the period. 2024Q1-3's gross sales margin was 13.88%, +1.25pct year on year, 9.34% of the period expenses, +0.94pct year on year, and the final net sales margin was 6.36%, +0.16pct year on year. 2024Q3's gross sales margin was 15.51%, +1.71 pct year on year, net sales margin 7.01%, -0.50 pct year on year. The company attaches importance to independent variety research and development. The 2024Q3 R&D cost was +60.69% year-on-year, and the driving cost ratio increased by 0.82 pct. (2) The purchase of additional wheat coincided with a drop in wheat prices, and the rate of return of capital was slowing down. The net cash flow generated by the company's operating activities in 2024Q1-3 was 0.369 billion yuan, -63.69% year-on-year. It was mainly due to the company's integrated expansion of wheat purchases. At the same time, due to the decline in wheat prices, sales of wheat and wheat seeds slowed down.

Conventional rice varieties have a significant advantage in the Jiangsu market, driving the year-on-year increase in sales of rice varieties

(1) Planting business: 2024Q1-3 sold 0.2137 million tons of wheat produced in-house, -9.08% year-on-year, and 0.1902 million tons of harvested wheat, -25.09% year-on-year. The company's profit contracted due to declining sales volume and falling wheat prices. (2) Seed business: 2024Q1-3's wheat export sales volume was 0.0844 million tons, or -47.31%; rice seed production was 0.1178 million tons, +22.06% year over year, and export sales volume was 0.117 million tons, +25.37% year over year. The subsidiary Dahua Seed Industry has significant advantages in the Jiangsu market, driving strong rice sales performance. (3) Rice processing and sales: In 2024Q1-3, the company produced 0.2296 million tons of rice, sold 0.2488 million tons of rice, and stocks fell to 0.0094 million tons. Compared with the same period, -17.65%, the pressure on rice stocks has eased.

Risk warning: The increase in planting costs exceeded expectations, the price increase of wheat and wheat fell short of expectations, and demand fell short of expectations.