Multiple seed companies accelerate commercial breeding: good varieties fear no bad market
This year's spring and summer planting seed sales season, for seed companies and the entire industry, is both the worst of times and the best of times.
The market is poor, and heavy inventory pressure remains the biggest difficulty commonly faced by seed companies. Taking corn seed as an example, although the hybrid corn seed production area has fallen sharply for two consecutive years and inventory has dropped to 1 billion kg, based on the national hybrid corn seed production area and inventory change trends, changes in corn seed inventory generally lag behind changes in seed production area by about two years. According to this pattern, the first quarter of this year exactly corresponds to the peak in seed production area two years ago.
Although the market is not ideal, from the perspective of industry development, favorable news for the seed industry continued in the first quarter of this year. On March 13, the State Council issued the "Several Opinions on Deepening Institutional and Mechanism Reform and Accelerating the Implementation of the Innovation-Driven Development Strategy," giving policy backing to seed companies' breeding research and development investment. Recently, the draft amendment to the Seed Law was submitted to the National People's Congress Standing Committee for deliberation for the first time. The draft comprehensively improved aspects such as encouraging independent innovation and cracking down on infringement. This is good news for the entire industry, especially for integrated breeding, propagation and promotion seed companies.
Recently, listed seed companies successively released their 2015 first-quarter reports. The reporter observed them one by one, and combined this with interviews with some non-listed seed companies. Overall, seed companies with outstanding varietal advantages still performed impressively in the new sales season. While accelerating the process of commercial breeding, many seed companies seized favorable policies for the seed industry and agriculture to accelerate development.
Good varieties fear no bad market
Good varieties are the passport to the market. This year, corn seed inventory is still excessive, and some seed companies even resorted to low-price dumping to clear inventory. However, Denghai Seed Industry still adhered to a strategy of stabilizing prices and increasing volume.
In terms of market performance, according to Denghai Seed Industry's announcement, in the first quarter of this year, the company achieved total operating revenue of 279 million yuan, down 29.46% year on year; net profit attributable to shareholders of the listed company was 87.25 million yuan, down 16.74% year on year. First-quarter performance was generally below expectations.
⟧ In response, the industry and brokerages generally believed that the poor book performance was mainly due to Denghai's cautious recognition of first-quarter revenue. Considering the return issue in the second quarter of last year, in the first quarter of this year, Denghai Pioneer adopted conservative return provisions.
In fact, Denghai 605, 618, and Liangyu series varieties performed very impressively in the new sales season, and the sales revenue contribution from the parent company and Dandong Liangyu is expected to exceed that of Denghai Pioneer for the first time.
Longping High-Tech achieved double growth in sales revenue and profit in the first quarter. Although the business of subsidiaries in the extended industrial chain remained sluggish, the three core subsidiaries grew rapidly. Hunan Longping, Anhui Longping, and Yahua Seed Industry together achieved revenue of 417 million yuan, up 16% year on year.
Longping High-Tech already had a leading advantage in varieties, and has also consistently been at the forefront of the industry in technical services and marketing. Although the company's “Liangyou 0293” variety suffered rice blast infestation last year in six cities including Bengbu and Anqing in Anhui, causing large-scale yield reduction and total crop failure. However, the promoted area of this variety was less than 500,000 mu, and it was not a main promoted variety, so it basically had no impact on the company's performance.
Multiple seed companies accelerate commercial breeding
Since last year, many seed companies have seized the opportunity of the national green channel for variety approval to accelerate the process of commercial breeding. According to statistics, in 2014, a total of 31 companies applied for the green channel; this year, 31 companies applied for corn varieties alone, with a total of 48 applicant companies.
In Quanyin High-Tech's first-quarter announcement, the first item in its major business review was "further accelerating the construction of the green channel." In order to accelerate the process of breeding new varieties and improve breeding innovation capability, Quanyin High-Tech organized the parent and subsidiary companies to conduct special research and deployment on accelerating the construction of the rice green channel, further clarifying the company's green channel construction goals, management methods, trial implementation, and operating mechanisms. In the first quarter, Quanyin High-Tech achieved operating revenue of 89 million yuan, an increase of 8.96% over the same period last year.
Relatively speaking, Longping High-Tech and Denghai Seed Industry moved faster in green channel construction. “According to the innovation approach of ‘develop one generation, reserve one generation, research one generation,’ Longping High-Tech's commercial breeding models for hybrid rice and hybrid corn are constantly maturing, and the scale of breeding continues to expand.” In April, at a symposium held in Beijing by the Seed Management Bureau of the Ministry of Agriculture, this newspaper, and the China Seed Association, Longping High-Tech vice president Yang Yuanzhu told reporters that Longping High-Tech's annual test-crossing scale for new rice and corn combinations exceeded 30,000 and 80,000 respectively. Last year, the Longping High-Tech system participated in 226 variety trials at various levels, among which 34 rice varieties were recommended for national regional trials, and 26 passed, a pass rate of 76.5%, far higher than the national average.
Denghai Seed Industry's varietal advantages were already very prominent. Last year, multiple varieties such as Denghai 618, Denghai 661, and Denghai 606 achieved high-yield breakthroughs in many places including Shandong, Xinjiang, Henan, and Hebei. To consolidate its varietal advantages, last year Denghai Seed Industry established 6 ecological regional trials and arranged nearly 100 self-bred varieties for multi-site testing. “The implementation of the green channel will significantly accelerate the commercialization process of the company's (Denghai Seed Industry's) varieties. There are 53 varieties each under research in the 605/335-like categories, and more than 10 varieties are expected to be available for commercialization in the next three years.” Brokerage CICC gave the following analysis at the end of the first quarter.
Seizing favorable conditions to accelerate development
According to the Ministry of Agriculture's "National Modern Crop Seed Industry Development Plan (2012—2020)," this year, the market share of the top 50 seed industry enterprises will increase to 40%, and by 2020, it will further increase to 60%. This means that in the coming years, seed companies need to strive to ride the development trend of “the strong becoming stronger.”
To forge iron, one must be strong oneself. Facing a situation of continuous favorable industry policies, several listed seed companies actively chose to “painstakingly cultivate internal strength.”
In the first quarter, Quanyin High-Tech added a corporate management department, specifically responsible for internal operations management and urging business units to complete operating targets, with the aim of implementing an equity incentive plan and effectively advancing each operating entity to achieve performance targets.
To enhance investor confidence, China Agricultural Development Seed Industry issued the "Three-Year Shareholder Return Plan (2015—2017)" on April 10. In the next three years, the company will give priority to cash dividends as its profit distribution method, distributing no less than 10% of the parent company's distributable profit realized in the current year in cash each year.
Longping High-Tech's core management began implementing a performance commitment agreement last year. According to the agreement, this year the company's net profit attributable to the parent company shall be no less than 490 million yuan. If performance does not meet the target, the core management will compensate in cash. If performance exceeds the target, the company will reward the team with 5% of the excess portion in cash. In the first quarter, Longping High-Tech achieved net profit attributable to shareholders of the listed company of 147 million yuan, an increase of 6.28% over the same period last year.
Using the power of the capital market to become bigger and stronger has become the choice of more and more seed companies. In March, the listing ceremony of Beidahuang Kenfeng Seed Industry Co., Ltd. on the “New Third Board” was held in Beijing. So far, the number of seed companies listed on the “New Third Board” has reached 8.
Against the backdrop of the rapid development of modern agriculture, many seed companies have begun diversified layouts. In the first quarter, Quanyin High-Tech and Anhui Zhonghe Goldman Sachs Market Investment Co., Ltd. jointly invested to establish Anhui Quanyin Goldman Sachs Investment Co., Ltd., mainly engaged in investment, development, and operation management of wholesale logistics markets for agricultural products, agricultural by-products, crop seeds, and other agricultural materials. In February and April of this year, Shennong Dafeng Seed Industry respectively signed the "One-Stop Grain Production Supply Chain Management Strategic Cooperation Framework Agreement" with the People's Government of Zhangshu City, Jiangxi Province, the People's Government of Huangmei County, Hubei Province, and Hubei Kanghong Grain and Oil Food Co., Ltd. By building a one-stop grain production supply chain management cooperation platform, it provides comprehensive, professional, and standardized one-stop supply chain management services in various forms including improved seeds, agricultural materials, agricultural machinery, technical services, financial services, and processing and sales services for new agricultural operating entities such as family farms, farmer cooperatives, and large grain growers.