EQUITY RESEARCH | December 9, 2025 | 11:40PM HKT CHINA AGRICULTURE China's food security - remarkable progress towards an ambitious goal Three years ago, we started our work asking how China might be able to attain food self-sufficiency in the face of a structural gap in arable land (9% of the world's arable land, against 18% of the world's population), amidst the headwinds of rising protein consumption, a shrinking rural workforce, heightened risks from climate change and pest control, and more volatile tr ...

Summary of Dabeinong (002385.SZ) Earnings Review Company Overview - **Company**: Dabeinong (002385.SZ) - **Industry**: Agriculture in China - **Market Cap**: Rmb17.5 billion / $2.5 billion - **Enterprise Value**: Rmb25.8 billion / $3.6 billion - **Current Price**: Rmb4.23 - **12-Month Price Target**: Rmb8.00 - **Upside Potential**: 89.1% [1][2][6] Key Financial Highlights - **1H25A Net Profit**: Rmb235 million, EPS of Rmb0.055/share, compared to a loss of Rmb0.036/share in 1H24A [1] - **Recurring Net Profit**: Rmb196 million, versus a loss of Rmb244 million in 1H24A [1] - **Revenue Growth**: 4% YoY to Rmb13,559 million in 1H25A [40] - **Gross Profit**: Increased by 12% YoY to Rmb1,915 million [40] - **No Final Dividend Declared**: Consistent with the previous year [1] Earnings Estimates Revisions - **2025E Recurring Earnings**: Revised down by 25% due to lower hog pricing assumptions [2] - **2026E Recurring Earnings**: Revised down by 4% [2] - **2027E Recurring Earnings**: Revised down by 9% [2] Segment Performance - **Feed Operations**: Contributed 56% of total gross profit; gross profit per ton was Rmb417, down 10% YoY [23] - **Hog Farming**: Contributed 29% of total gross profit; total unit cost of market hog decreased by 16% YoY [26] - **Traditional Seeds**: Contributed 9% of total gross profit; driven by higher sales volume and unit gross profit [27] - **Biotech Seeds**: Expected to generate Rmb116 million in revenue in 2025E, with a potential increase to Rmb532 million in 2026E [21] Market Dynamics - **Hog Pricing Outlook**: Expected to improve to Rmb16.5/kg in 2026E, up from Rmb14.8/kg in 1H25A [20] - **Biotech Seed Penetration**: Anticipated to reach 7% in the 2024/25 planting season, lower than previous estimates [21] - **Traditional Seed Market**: Potential market gains in Southwestern regions due to product promotion [22] Cash Flow and Balance Sheet - **Operating Cash Flow**: Turned positive in 1H25A, compared to negative Rmb190 million a year ago [34] - **Free Cash Flow**: Negative Rmb363 million in 1H25A, an improvement from negative Rmb593 million in 1H24A [34] - **Net Debt**: Rmb8.14 billion as of end of 1H25A, with net gearing at 93% [35][36] Valuation and Risks - **Valuation Methodology**: Based on average near-term and long-term valuations, with a target price implying a P/E of 34x for 2025E [37] - **Key Risks**: Include uncertainty in hog prices, lower-than-expected feed consumption demand, and slower government plans for GM seed commercialization [38] Conclusion - **Investment Recommendation**: Maintain Buy rating on Dabeinong with a target price of Rmb8.00, reflecting strong potential upside based on market positioning and growth in biotech seeds [2][37]

Summary of Longping High-Tech (000998.SZ) Earnings Call Company Overview - **Company**: Longping High-Tech (000998.SZ) - **Industry**: Agriculture, specifically seed production - **Market Cap**: Rmb13.3 billion / $1.9 billion - **Enterprise Value**: Rmb24.4 billion / $3.4 billion - **12-Month Price Target**: Rmb12.00, indicating an upside of 18.9% from the current price of Rmb10.09 Key Financial Highlights - **1H25A Results**: - Net loss of Rmb164 million, compared to a profit of Rmb111 million in 1H24A - Recurring net loss of Rmb284 million, up from Rmb62 million a year ago - Revenue decreased by 16% YoY to Rmb2,166 million - Gross profit declined by 4% YoY to Rmb786 million - No interim dividend declared, consistent with the previous year [1][34] Earnings Estimates Revisions - **2025E**: Recurring earnings estimates revised down by 20% - **2026E**: Revised down by 5% - **2027E**: Revised down by 2% - Expected recurring net profit to decline by 30% in 2025E, but improve by 80% in 2026E, driven by rice seeds and Brazil corn operations [2][38] Segment Performance - **Domestic Corn Seeds**: - Gross profit down 40% to Rmb6.4/kg due to lower average selling price (ASP) and higher unit costs - Sales volume significantly decreased by 69% YoY [25][35] - **Hybrid Rice Seeds**: - Stable gross profit, maintaining a 20% market share in the domestic market - Expected to benefit from high disease resistance and premium pricing [22][26] - **Brazil Operations**: - Gross profit improved nearly 4.9x YoY, driven by lower high-cost inventory and stable pricing - Sales volume improved for the 24/25 Safrinha season [28][35] - **Biotech Seeds**: - Expected to reach 10% penetration in the domestic market by 2025E, potentially boosting total profit by 4% in 2025E and 13% in 2026E [24][29] Cash Flow and Balance Sheet - **Operating Cash Flow**: Negative Rmb938 million, consistent with seasonal patterns - **Free Cash Flow**: Negative Rmb1,169 million for 1H25A - **Net Debt**: Rmb8.38 billion with a net gearing ratio of 86%, down from 101% at the end of 2024A [30][34] Valuation and Risks - **Valuation Methodology**: - Near-term valuation based on a P/E of 30x for 2026E - Long-term valuation includes a P/E of 20x for traditional seeds by 2030E - Target price of Rmb12.0 implies a P/E of 30x for 2026E and 22x for 2027E [31][41] - **Key Risks**: - Slower-than-expected government approval for GM seed commercialization - Potential downturn in hybrid rice pricing cycle - Uncertainty in the recovery of the Brazil business [32][40] Conclusion - Longping High-Tech remains a dominant player in China's seed industry, with significant potential in biotech seeds. Despite current challenges, the company is expected to recover in the coming years, supported by improvements in rice seeds and Brazil operations. The investment thesis remains positive with a "Buy" rating based on future growth prospects and market positioning [38][41]

Investment Rating - The report maintains a "Buy" rating on Dabeinong (DBN) for biotech seeds and Muyuan Foods, driven by a sustainable margin outlook [3][58]. Core Insights - The higher tariffs imposed by China on US agricultural imports, particularly soybeans, are expected to add inflationary pressure on major grains, but the overall inflation impact may be mitigated by strong harvests in Brazil and soft domestic demand for animal protein [1][12]. - Biotech seed penetration in China is projected to increase significantly, with commercial planting expected to reach 90% of corn planting areas for the 25/26E season, up from 61% in the previous season [2]. - Dabeinong's market share in approved biotech seed varieties remains dominant at 60%, indicating strong competitive positioning in the market [2]. Summary by Sections Tariff Impact - The report discusses the historical context of tariffs, noting that a 135% tariff on US soybeans could lead to a wider pricing disparity compared to Brazilian soybeans, although this may be offset by alternative supply factors and weak domestic demand [12][11]. Biotech Seeds - Feedback from the industry indicates that biotech seed penetration is expected to reach 10% for the 25/26E planting season, a significant increase from 2% a year ago [2]. - The report highlights the positive feedback on trait payment terms, which could further enhance the adoption of biotech seeds [2]. Agricultural Coverage - The report provides a comprehensive overview of the agricultural sector, emphasizing the importance of tracking domestic animal protein supply and cost, as well as the supply/demand balance of major grains globally and in China [23]. - Key charts and data points are included to help investors gauge trends in protein consumption, crush margins, inventory, import, and pricing for major proteins [23].