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]