Beidahuang (600598)

1Q24 Net profit attributable to parent company+3.6% year on year, in line with our expectations

    Beidahuang announced 1Q24 performance: 1Q24 company revenue+10.3% year-on-year to 956 million yuan, net profit attributable to the parent company+3.6% year-on-year to 555 million yuan, performance in line with our expectations. The company's income and net profit attributable to the parent company grew steadily. We believe or benefit from the steady increase of farmland contract rent this year and the smooth progress of 1Q24 farmland contract revenue recognition.

    Development trend

    Advance receipts, contractual liabilities and cash flow grew steadily, and the main business of farmland contracting is expected to continue to grow.

    1) In 1Q24, the Company's advance receipts and contractual liabilities totaled+4.0% to 4.39 billion yuan on a year-on-year basis, and the cash received from selling goods and providing services in 1Q24 totaled+5.2% to 5.46 billion yuan on a year-on-year basis. We think this reflects the steady increase of land rent of the company this year, which drives the increase of annual contract fees paid in advance. Looking ahead, we expect the company's annual land contracting fee income to continue to grow. 2) In 1Q24, the company's inventory was - 11% year-on-year to 1.12 billion yuan. In history, the inventory at the end of the first quarter was mainly agricultural fertilizer, which was the early stock of agricultural materials for centralized sales in the second quarter. We believe that the inventory in 1Q24 declined year-on-year or was related to the year-on-year decline in the prices of pesticides and fertilizers. It is expected that the company's annual sales scale of agricultural materials may shrink slightly with the price.

    The increase of social security base and the decrease of interest income resulted in a slight decline in profitability in the current quarter. 1) Gross profit rate:

    The gross profit rate of 1Q24 fell to 67.8% YoY from -0.7ppt. We believe that the increase in the social security base in the middle of the year 23 may increase the operating costs of the main business of farmland contracting, and the gross profit rate of 1Q24 declined slightly due to this impact. 2) Expense rate: 1Q24 sales/management (including R&D)/financial expense rate respectively increased from+0.5/+0.4/+3.4ppt to 1.2%/12.2%/- 2.9% year on year, of which the financial expense rate increased significantly year on year, mainly because 1Q24 interest income decreased year on year. 3) Under the comprehensive influence, the company's 1Q24 net interest rate dropped slightly to 58.0% from - 3.7ppt on a year-on-year basis, but still remained relatively high.

    The land contract rent is expected to increase steadily, focusing on the transformation of the main industry into a modern agricultural service platform. 1) In the short term, the No. 1 Document of the Central Committee of the People's Republic of China this year emphasized that "the focus of grain production increase should be put on increasing the per unit area yield in a large area" and "the integration of good farmland, good varieties, good laws, good opportunities and good systems should be promoted." The company has more than 10 million mu of "good farmland", and the level of standardization, modernization, mechanization and intelligence is leading in the country. We believe that the value of the company's arable land is expected to gradually emerge, There is still room for improvement of land contract rent. 2) In the long run, according to the company's official account, the company will focus on the development of customized agriculture, the improvement of the unit yield of major crops, and the acceleration of scientific and technological modernization, focusing on a variety of business models, such as sales and purchase, collection and storage, to improve the quality of agricultural operations. We are optimistic about the company's expansion from a traditional agricultural land operator to a modern agricultural service platform, and the long-term space is expected to gradually open.

    Profit forecast and valuation

    The current stock price corresponds to 20/19 times P/E in 24/25 years. We maintain the 24/25 year parent net profit forecast of 1.14/1.22 billion yuan unchanged, maintain the target price of 15.5 yuan, corresponding to 24/23 times P/E in 24/25 years, 19% upside space, and maintain the outperforming industry rating.

    Risk

    Asset impairment; natural disaster; Pending litigation (arbitration) cases; The progress of reform was lower than expected.