Excellent enterprises leading in plantation industry to welcome golden period of development On February 4, Xinhua News Agency was authorized to introduce the first policy document of 2018 on guiding development of issues related to agriculture, farmer and rural area, which is the 20th one released since the reform and opening-up policy and the 15th one since 21st century. The document was about the CPC central committee’s opinion on implementing strategy of revitalizing rural area.
Many securities companies including Guotai Junan Securities and CITIC Securities released research reports, favoring opportunity for value of companies leading in plantation industry to recover. Guotai Junan Securities viewed that agriculture will embrace new ear of reform with revitalizing rural area upgrading to a national strategy. Driven by supply-side structure reform and land transfer, quality enterprises in plantation and cultivation fields will usher in golden period for development. With conformation of land right, pilot of three reforms of rural land and revision of land management law finished, land transform will speed up the start of golden age for large scale plantation. It will also quicken the development of new agricultural companies, and plantation will give rise to enterprises with 100 trillion yuan of market value. As to supply-side structural reform in agriculture, breeding will make significant contribution to improvement in quality of cultivation industrial chain, which is expected to continue to enjoy policy support. In terms of strategy, securities companies are bullish in leading companies in plantation industry which make the greatest contribution and highly recommend Yuan Longping High-tech Agriculture Co., Ltd. (000998.SZ). Secondly, benefited from land transfer, Jiangsu Provincial Agricultural Reclamation And Development Co., Ltd. (601952.SH) is heavily recommended.
CITIC Securities said that plantation industry is a typical industry with high barriers, so it is supposed to enjoy high valuation. Valuation of international giants is over 40 times on average during rapid development period, and the market’s preference towards growth stock is increasing now. Therefore, listed firms leading in plantation industry may welcome opportunity to see valuation recover.
As a matter of fact, as supply-side structural reform is promoted continuously, listed company of the industry also saw remarkable improvement in performance. By now, 11 companies have disclosed earning projection for 2017, with 9 firms, or over 80 percent, projecting profit growth. Win-all Hi-tech Seed Co., Ltd. (600308.SH) and Yuan Longping High-tech Agriculture predicted that their 2017 net profits will grow by over 50 percent year on year.
As for secondary market, plantation sector showed worse performance last week with a drop of 6.04 percent. Except Yuan Longping High-tech Agriculture surged by 0.99 percent, other 15 individual stocks all saw decline to different extent last week. Decrease in 6 excellent leading stocks including Xinjiang Talimu Agriculture Development. Co., Ltd. (600359.SH), Gansu Dunhuang Seed Co., Ltd. (600354.SH), Shanghai Xuerong Biotechnology Co., Ltd. (300511.SZ), Tianshui Zhongxing Bio-technology Co., Ltd. (002772.SZ), Hainan Shennong Gene Technology Co., Ltd. (300189.SZ) and Winall Hi-tech Seed outpaced the market last week (SSE Composite Index fell by 2.7 percent during the same period). These 6 stocks all predicted growth in profits. They are worthy of anticipation in the future after they were undervalued.
Valuation of 9 firms in breeding industry may be recoverd
According to further data, profitability of listed firms in breeding industry was also improved. As of now, 20 companies have disclosed earning projection for 2017, with 11 firms, or over 50 percent, projecting profit growth. Shanghai Kaichuang Marine International Co., Ltd. (600097.SH), Baiyang Investment Group, INC. (002696.SZ), Shandong Oriental Ocean Sci-Tech Co., Ltd. (002086.SZ), Luoniushan Co., Ltd. (000735.SZ) and Zhanjiang Guolian Aquatic Products Co., Ltd. (300094.SZ) predicted that their 2017 net profits will rise by over 50 percent year on year. Hubei Wuchangyu Co., Ltd. (600275.SH) and Xinjiang Tianshan Animal Husbandry Bio-engineering Co., Ltd. (300313.SZ) were expected to turn losses into profits.
Noticeably, although performance of breeding companies has been improved, stock prices of component stocks in the sector dropped widely lately. Industry insiders said that stock prices of leading companies with outstanding performance may be oversold and then rebound in the future. According to statistics, breeding sector slipped by 10.74 percent last week. Except that Baiyang Investment Group rose by 2.05 percent, the remaining 22 individual stocks saw decline to different extent. 9 leading stocks including Henan Huaying Agricultural Development Co., Ltd. (002321.SZ), Shandong Oriental Ocean Sci-Tech, Luoniushan, Muyuan Foods Co., Ltd. (002714.SZ), CNFC Overseas Fisheries Co., Ltd. (000798.SZ), Xinjiang Tianshan Animal Husbandry Bio-engineering Co., Ltd. (300313.SZ), Shanghai Kaichuang Marine International, Zhanjiang Guolian Aquatic Products Co., Ltd. (300094.SZ) and Hunan Dakang International Food & Agriculture Co., Ltd. (002505.SZ) dropped further than the market last week (SSE Composite Index fell by 2.7 percent at the same period), but they predicted growth in profits.
As of last Friday's close, the overall dynamic P/E of the aquaculture sector was 32.84. Among the above 9 oversold stocks, the dynamic P/E ratio of CNFC Overseas Fisheries, Kaichuang Marine International and Muyuan Foods was lower than that of the sector. With a high margin of safety, the three stocks deserve attention.
CNFC Overseas Fisheries is typical. The company expects net profit for 2017 at 40-60 million yuan, up -21.87-17.19 percent year on year after adjustment. Its earnings per share were expected at about 0.1252 -0.1878 yuan. (Its adjusted net profit for the same period a year earlier was 51.1955 million yuan, with earnings per share at 0.1603 yuan). At present, the stock fell 9.30 percent last week. Its latest dynamic P/E ratio was 17.95 and would rebound in the future.
Reform of land transfer market expected to accelerate and deepen
With vigorous policy support, the land system reform will continue to be advanced. The performance of listed companies in the land transfer industry was remarkable. According to statistics from Hithink RoyalFlush Information Network compiled by the Securities Daily Market Research Center, as of now, a total of 21 companies have disclosed their earnings preannouncement. 17 companies, 80 percent of them, reported positive results. Among them, 10 companies, including Shenzhen Kondarl (Group) Co., Ltd. (000048.SZ), Yueyang Forest & Paper Co., Ltd. (000963.SZ), Fujian Qingshan Paper Industry Co., Ltd. (600103.SH), Fujian Jinsen Forestry Co., Ltd. (002679.SZ), Luoniushan Co., Ltd. (000735.SZ), Dayu Water-saving Group Co., Ltd. (300021.SZ), Guangzhou Zhujiang Brewery Co., Ltd. (002461.SZ), Hainan Expressway Co., Ltd. (000886.SZ), Zhongmin Energy (600163.SH), Henan Xinye Textile Co., Ltd. (002087.SZ), expect a year-on-year increase of over 50 percent in net profit in 2017.
In the secondary market, the land transfer sector weakened 9.84 percent last week. Except Kondarl Group which gained 8.72 percent, all the other 37 stocks declined at different degrees last week. 16 stocks that reported positive growth declined further than the broader market during the period. (The SSE Composite Index declined 2.7 percent). Hainan Expressway, Xinjiang Talimu Agriculture Development Co., Ltd. (600359.SH), Luoniushan, Zhejiang Aishida Electric Co., Ltd. (002403.SZ) and Zhujiang Brewery lost over 10 percent. They are obviously oversold and are worth attention.
TF Securities said the land transfer reform is expected to deepen, and the transfer of land among enterprises is expected to accelerate, which will bring a one-trillion yuan market. Looking back at 2017, the confirmation of rights of cultivated land throughout the country was basically completed. The pilot reform of the rural land and the revision of the land law will be completed in 2018. Under the background of rural vitalization strategy, it is expected that the land transfer reform in China will accelerate and deepen, and promote enterprises to speed up land transfer to achieve the industrialization of grain. China has a vast Land transfer market, which could give birth to leading company. At present, China owns 2.2 billion mu of cultivated land, minimum 1.8 billion mu of cultivated land for environment protection and 1.5 billion mu of land contracted by household. China's land transfer leader Jiangsu Provincial Agricultural Reclamation and Development only has only 120 million mu of cultivated land, accounting for less than one thousandth. More policies will be introduced in 2018. The year 2019 will see outbreak of land transfer, which will bring development opportunities for leading land transfer enterprises.
Translated by Vanessa Chen & Coral Zhong
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