\u3000\u3000 Yuan Longping High-Tech Agriculture Co.Ltd(000998) (000998)
Key investment points
China’s comprehensive seed industry leader has achieved steady growth with “endogenous development + epitaxial M & a”
The company is the largest seed enterprise in China, inheriting the Longping spirit and comprehensively covering rice, corn, vegetables, fruits, wheat, sunflower, miscellaneous grain and other seeds. In 2016, after CITIC Group took over, the company started endogenous development + epitaxial M & a development, absorbed China’s high-quality seed industry resources and developed the Brazilian market. The company’s performance is driven by two wheels of rice + corn, accounting for 72% of the total revenue in 2020. In 2020, the company walked out of the industry downturn, realized a net profit of 116 million yuan, turned losses into profits, and ushered in an inflection point of growth.
With the improvement of fundamentals and policy catalysis, the seed industry ushered in an upward cycle
The market scale of seed industry has reached 119.2 billion yuan. The decline in demand + product homogenization in recent years have affected the development of the industry. In 2021, the industry ushered in an upward cycle. In terms of supply and demand, the supply of hybrid corn contracted, and high price + low inventory + strong demand is expected to drive the upward trend of corn seeds; In terms of policies, the revitalization of the seed industry has been promoted in an all-round way, the threshold for variety approval has been raised, innovation in the seed industry has been encouraged, fake license infringement has been cracked down, and transgenic plants have been accelerated.
Commercial breeding capacity + transgenic technology reserve or promote continuous growth of performance
In 2020, the market share of rice and corn of the company was 9.8% and 3.7% respectively, ranking first, and the scale advantage is expected to be maintained. The company has a stable high-quality scientific research team and perfect breeding system. The company’s R & D investment accounted for more than 10% of its operating revenue in recent three years, with a cumulative R & D expenditure of 1.2 billion yuan, leading the industry. The company’s Longping biology and Hangzhou Ruifeng transgenic technology reserves are rich. In the future, it may harvest transgenic dividends through seed sales + trait transfer.
Profit forecast and valuation
We expect that the company’s rice business will remain stable, the corn business will usher in growth, and the vegetable, melon and fruit business will grow steadily. The revenue from 2021 to 2023 will be RMB 3.768 billion, RMB 4.406 billion and RMB 5.426 billion respectively; The net profit attributable to the parent company was 125 million yuan, 170 million yuan and 337 million yuan respectively; The corresponding PE was 209, 154 and 78 times respectively. We believe that the company, as a leader in the seed industry, benefited from the comprehensive business + first mover advantage and the favorable environment of seed industry revitalization + transgenic commercialization, and gave a “overweight” rating for the first time.
Risk tips
Affected by extreme weather and diseases and insect pests, the product sales were lower than expected, and the GM landing was lower than expected.
