Friday, September 21, 2012

Performance overview of listed seed companies in H1 2012

In H1 2012, the performances of listed seed companies present obvious differentiation, caused by industrial changes and operating strategies. Judging from the financial reports of the listed seed companies, industrial competition has been intensified. However, the seed players which are able to make reasonable adjustments to their operating strategies can often achieve a sound development, while the conservative players are often at a disadvantage in the competition. For domestic seed companies, an excellent variety with great potential usually means handsome profits, providing a powerful support for their business growth, according to CCM’s August Issue of Seed China News.

The oversupply of corn seeds is becoming more serious in 2012, following the similar situation in previous years. The homogeneous competition is rather common among domestic corn seed producers, mainly relying on promoting some old corn varieties which have entered the market for years. Mainly owing to the increasing costs of production materials and labor costs, the overall gross profit margin of corn seeds would have shown a downward trend. While for some listed seed companies which try to provide excellent seeds or promote new corn varieties with better integrated traits, they would be able to enhance their overall profit margin of corn seeds.
Taking Hefei Fengle Seed Co., Ltd. (Hefei Fengle) for example, the profit margin in corn seeds in H1 2012 sees a significant decline over the same period of last year. Actually, the company has cut its corn seed output in its production base of Gansu Province, mainly in view of the increasing production costs and the oversupply of corn seeds in national market. In addition, some old corn varieties such as "Xundan 20" and "Jidan 7" are still Hefei Fengle's main sources of revenue in corn seed business.
The unsatisfactory performances of Gansu Dunhuang Seed Co., Ltd. (Gansu Dunhuang) and Shandong Denghai Seeds Co., Ltd. (Shandong Denghai) in H1 2012 has caused a widespread concern in the industry. In previous years, the two companies greatly benefited from their separate joint ventures with Pioneer Hi-Bred International Inc., thanks to the sound performance of corn hybrid "Xianyu 335". Unfortunately, both the sales and profits of "Xianyu 335" seeds decreased sharply in 2012, which could be primarily attributed to oversupply of corn seeds in current market. As a result, Shandong Denghai has a declining performance and Gansu Dunhuang suffers a net loss in H1 2012.
For Yuan Longping High-tech Agriculture Co., Ltd. (Longping High-tech) which has been enhancing corn seed business, its revenue in corn seeds sees a sharp growth in H1 2012, mainly owing to the enlarged promotion of corn hybrid "Longping 206". However, its gross profit margin in corn seeds shows a certain decrease, mainly due to the rising production costs in the period.
In corn seed business, Winall Hi-tech Seed Co., Ltd. (Winall Hi-tech) has an increasing performance after acquiring two corn hybrids: "Gaoyu 2067" and "Yangguang 98". As a technology-oriented hybrid rice company, Winall Hi-tech is actively exploring its corn seed business. In H1 2012, Winall Hi-tech has a sharp growth in corn seed, with the gross profit margin increasing from 19.05% to 32.36%.

Compared with corn seed market, rice seed market has a relatively relaxed situation, reflected in light of oversupply and upward profit margin. There have been diversified hybrid rice seeds in the market, thanks to the advanced hybrid rice breeding level at home. Overall, hybrid rice seed companies which deliver higher-value rice seeds to farmers are able to make handsome profits. For example, Longping High-tech, Winall Hi-tech and Grand Agriseeds Technology, Inc. (Grand Agriseeds) generate increasing profits from hybrid rice seeds in H1 2012.
For Longping High-tech, the revenue and gross profit margin in hybrid rice seeds continue to increase in H1 2012, mainly attributed to its leading hybrid rice variety: "Y Liangyou 1", which was bred by Hunan Hybrid Rice Research Center (HHRRC). Moreover, "Shen Liangyou 5814", a super rice variety approved in 2012, has been well recognized by rice growers, thus contributing rising sales and profits to Longping High-tech.
The increasing exports of hybrid rice seeds would provide a force for domestic hybrid seed industry. As a world leader in developing rice hybrid technology, China has gradually increased the exports of hybrid rice seeds or enhanced foreign aid on hybrid rice technology in recent years. Under such the situation, domestic hybrid rice companies intend to develop or explore overseas markets. In terms of export value of hybrid rice seeds, Winall Hi-tech and Grand Agriseeds generate the growth of 91.23% and 88.49% in H1 2012, respectively.
The oversupply of hybrid rice seeds should not be ignored at home. Owing to continuously updated hybrid rice varieties and increased seed output, the competition in hybrid rice markets would be more and more intense in future. It is known that Guangdong Golden Rice Seeds Co., Ltd., a prominent hybrid rice company in South China, has reduced its hybrid seed production and promotion of some small varieties, in view of declined sales and intensified competition.

Diversified operation in seed products would be a good choice for domestic seed companies. For Longping High-tech and Winall Hi-tech which are striving to develop corn seed business while further enhancing their core business: hybrid rice seed, both witness a sound performance in H1 2012. Aiming to reduce the risk of single business, Grand Agriseeds is actively adjusting its operating structure of crop varieties, by enhancing the breeding and promotion of new corn varieties. However, Hefei Fengle which has a performance decline in seed business in H1 2012 has expanded other businesses like spice and agrochemical, with sales proportion over 50% of the total.
It is expected that Longping High-tech and Winall Hi-tech would seed continuous growth in the coming few years. It's reported that Longping High-tech already signed an agreement with Hunan Hybrid Rice Research in Nov. 2011, indicating that Longping High-tech will exclusively commercially operate all rice varieties bred by the latter by paying USD1.58 million (RMB10 million) each year. For Winall Hi-tech which is expert in hybrid rice breeding, its developing corn seed business and wheat seed business will generate more profits in future.
Shandong Denghai and Gansu Dunhuang, two leading corn seed producers at home, would undertake great pressure in H2 2012. In view of the decreasing performance of "Xianyu 335", the two companies will enhance the operation of other corn hybrids in future. For example, Gansu Dunhuang is striving to promote its new purchased corn hybrid: "Jixiang 1" and Shandong Denghai is strengthening the promotion of self-developed corn hybrids such as "Denghai 605".

Content of Seed China News 1208:
Variety registration system expected to be improved or canceled
Performance overview of listed seed companies in H1 2012
Origin advances GM and hybrid corn breeding
Market situation of watermelon seed in Guangxi
Stress tolerance of alfalfa to be strengthened
Greenhouse cucumber cultivation rising in northern China
How to save China's non-GM soybean?
Rapeseed planting area continuously decreasing in Hubei
"Y Liangyou 2" with "Y58S" exclusively promoted by Anhui Yuanliang
F-type three-line hybrid wheat to realize industrialization
Ex-factory price of DETCL keeps decreasing

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