\u3000\u3 China Vanke Co.Ltd(000002) 385 Beijing Dabeinong Technology Group Co.Ltd(002385) )
Key investment points
Geopolitical conflicts may continue to affect food production outside China
Russia is the world’s largest grain producer and the world’s largest wheat exporter; Ukraine’s black land area accounts for 23% of the world, becoming one of the world’s Shenzhen Agricultural Products Group Co.Ltd(000061) major exporters and known as the “granary of Europe”. The conflict between Russia and Ukraine has a direct impact on the food production and export of the two countries. Russia announced the suspension of food export. The spring ploughing in Ukraine was disturbed. Under the expectation of production reduction, the market was strongly bullish on global food prices, and global food prices continued to rise. According to China Central Television News Report: on March 29 local time, after the end of the first day of the fifth round of Russia Ukraine negotiations, the head of the Russian delegation mezinski said that Russia had received Ukraine’s written proposal and confirmed its willingness to maintain a neutral and nuclear free status, including abandoning the production and deployment of all types of weapons of mass destruction. We believe that the current military struggle between the two countries has gradually cooled down, but there has been no major change in the supply and demand pattern of global energy, food and agricultural materials. Geopolitical conflicts and energy sanctions are still likely to continue. Global energy pricing such as oil and natural gas may remain high, which will push up the prices of agricultural materials such as pesticides and fertilizers in the downstream and increase the cost of food production, Or have a potential negative impact on medium and long-term grain production outside China, and global grain prices may rise further.
China’s GM landing may make more progress than expected
Food security is the basis of national security. It is different from the shortage of other general industrial products. Once it can not meet the needs of residents, there will be short supply, which will lead to the security crisis of the whole country. China’s total grain output has remained above 1.3 trillion Jin for seven consecutive years. Although it has basically achieved self-sufficiency in rations, it still faces a serious structural shortage, of which more than 85% of soybeans depend on imports from the United States, Brazil and other places; Corn imports increased by more than 10% for two consecutive years in 2020 / 21, of which about 1 / 3 was imported from Ukraine; The high gluten wheat needed to make high-quality bread also depends on imports. Among them, the self-sufficiency rate of soybeans is less than 20%, which is mainly caused by low per unit yield, farmers’ low planting enthusiasm and the growing demand for oil and oil. We note that China’s grain prices may be affected by the linkage of international market fluctuations. We should pay more attention to the rising prices of agricultural materials such as pesticides and chemical fertilizers, which push up China’s grain production costs, or affect farmers’ planting enthusiasm and exacerbate the structural shortage of grain. We believe that the promotion of genetically modified organisms is based on the background that “the rice bowl of Chinese people should be firmly in their own hands at all times”. Biological breeding technology can solve the problem of oil shortage in China from the perspective of productivity factors and ensure China’s food security. It is expected that the commercialization process of genetically modified organisms breeding in China is expected to make a breakthrough. We may see the introduction of seed production pilot scheme in 2022, The charging method of transgenic traits may be further implemented within the year, and the seed enterprises with obvious technical and quality advantages may take the lead in benefiting.
Beijing Dabeinong Technology Group Co.Ltd(002385) transgenic seed industry is ready to go
The company uses feed business to support cash flow and positions pig breeding and seed business as a star business, with high synergy and complementarity among industries. The company first released the Bureau’s genetically modified seed industry. At present, it has leading genetically modified corn character products, including dbn9936, dbn9858 (supporting shelter), dbn9501 and dbn3601t; It has advanced soybean trait gene dbn9004. In terms of business planning of biological breeding industry, the company is located in Northeast China, Huang Huai Hai, Southwest China and other regions; Cultivate and develop markets in South America and Northeast Asia abroad, so as to lay a good foundation for the future international China two wheel drive strategy. We believe that the company ranks first in the genetically modified trait reserve industry and has the most extensive area of genetically modified corn expansion. At present, the company has cooperated with more than 130 corn seed enterprises. Once China’s genetically modified organism breeding is commercialized, the company’s genetically modified seed sales and trait charges will contribute excess profits. Moreover, the research and development of genetically modified traits takes a long time, with large capital and human investment. The approval of genetically modified varieties is equivalent to having a first mover advantage of about 10 years. In addition, the state highly supports the protection of original innovation and intellectual property rights and helps the company establish competitive barriers and moat advantages. The company is expected to take the lead in grasping the historic opportunity of biological breeding and become a seed industry giant of new technology.
Profit forecast and valuation
(1) feed:
The company’s feed business has achieved sustained and steady development with its brand and reputation accumulated over the years. After the acquisition of Jiuding, the company has been comprehensively strengthened in feed scale, regional layout and product advantages. The company is expected to achieve the strategic goal of 8 / 10 million tons of sales in 2022 / 23. Moreover, the company mainly sells high-end pig feed, with a relatively high gross profit margin and a profit of about 100 million tons. It is estimated that from 2021 to 2023, the company’s feed business will achieve revenue of 22.414 billion yuan, 26.112 billion yuan and 29.323 billion yuan respectively, and the gross profit margin will be 16.95%, 17.55% and 16.83% respectively.
(2) pig raising:
The company’s pig breeding business has obvious advantages in seed source technology and the integration of feed, animal protection and vaccine. It is expected to achieve the cost target of 8 yuan / kg in the second half of 2022. Considering the downturn of pig market in 2022, the company may slow down the marketing progress; In 2023, the pig price rebounded and rose, and the company may increase its marketing. At present, the company has a production capacity of 400000 sows and a basic stock of 200000 sows. It is estimated that 4.5 million / 7 million fattening pigs will be sold in 2022 / 23, with a unit cost of 15.0/14.2 yuan / kg, an average sales price of 14.5/18.8 yuan / kg and a slaughter weight of 115 / 115 kg respectively. It is estimated that from 2021 to 203, the company’s pig business achieved revenue of RMB 8.607 billion, RMB 7.504 billion and RMB 15.134 billion respectively, and the gross profit margin was – 3.65%, – 3.44% and 24.47% respectively.
(3) seed industry:
The company previously stripped the high-quality resources of corn seed industry from golden Nonghua and established golden abundance. Benefiting from the good sales of corn seed industry, golden abundance’s income and performance increased significantly in 2021. In 2022, China’s grain prices will continue to rise, and the seed industry sector may continue to have a high momentum. The company’s traditional seed industry is expected to continue to increase both volume and price. In addition, the company’s seed industry has rich reserves of genetically modified traits. If genetically modified corn and soybean are commercialized in 2023, the company’s genetically modified seed sales and trait fees are expected to contribute excess profits.
The company’s profit calculation of genetically modified seed industry in 2023: ① assuming that the sown area of China’s corn is stable at 600 million mu, the terminal market cost of seeds per mu is 75 yuan, and the ex factory price is 70% of the terminal cost, the ex factory market space of China’s genetically modified corn seeds is 31.5 billion yuan; According to the profitability of Monsanto corn seeds, an international seed enterprise, it is estimated that the net profit margin of China’s genetically modified corn seeds is about 35%, so the profit margin of China’s genetically modified corn seeds can reach 11 billion yuan. Among them, the charge for genetically modified traits is 4.3 billion yuan (12 yuan per mu, 60% net interest rate), and the seed sales is 6.7 billion yuan; ② At present, the company has the largest reserves of genetically modified traits. At the initial stage of the promotion of genetically modified maize, it should obtain the highest market share (60%) in terms of trait authorization. It is estimated that 2023 will be the first year of the promotion of genetically modified maize, with a penetration rate of 10%, and the profit of trait authorization of the company will be 258 million yuan; ③ The company has a traditional corn seed industry, which can directly sell genetically modified seeds, but the market is smaller than Yuan Longping High-Tech Agriculture Co.Ltd(000998) and Shandong Denghai Seeds Co.Ltd(002041) . It is estimated that the sales market of genetically modified seeds will only account for 10% of the market share in 2023. According to the penetration rate of 10%, the company’s profit from the sales of genetically modified seeds is estimated to be 67 million yuan. The company is expected to make a profit of 325 million yuan in 2023.
It is estimated that the company’s seed industry will achieve revenue of RMB 489 million, RMB 612 million and RMB 1427 million respectively from 2021 to 2023, and the gross profit margin will be 36.85%, 39.27% and 54.24% respectively.
To sum up, it is estimated that from 2021 to 2023, the company’s net profit attributable to the parent company will be -341 million, 569 million and 3.709 billion yuan respectively, with year-on-year changes of – 117.43%, 266.86% and 552.02% respectively; EPS is -0.08, 0.14 and 0.88 yuan / share respectively, and the corresponding PE is -106.92, 64.09 and 9.83 times respectively. Considering the high competitive barriers of the company’s transgenic technology, the sales and character charges of transgenic seeds are expected to continue to contribute to the performance increment, optimistic about the long-term growth of the company and maintain the “buy” rating.
Risk tips
The implementation of the policy is less than expected; Intensified competition in feed industry; The slaughter of pigs was less than expected.
