CITIC SEC: Emphasizing Autonomous and Controllable Overlapping Food Security, Focusing on Investment Opportunities in the Seed Industry.

CITIC SEC released a research report stating that, based on historical experience, the expectation of countermeasures against Trump's victory is increasing, which may raise the import costs of Shenzhen Agricultural Power Group and boost the prosperity of the planting industry chain. The importance of food security is highlighted, and reducing dependence on imports from the United States will accelerate the domestic production of food to achieve "domestic substitutes". The policy of independent and controllable technology may be further intensified, and seeds as "agricultural chips" may receive stronger policy support to achieve a leap in development. Subsequently, with clear external catalysts, it is recommended to increase the layout of the planting industry chain and the two major sectors of seed industry and planting. Event: According to Xinhua News Agency on November 6th, the Republican presidential candidate Trump announced on November 6th local time that he won the presidential election in 2024. CITIC SEC's main points are as follows: Expectations of countermeasures are rising, which may improve the prosperity of the planting chain. Reviewing Trump's last term, in March 2018, the U.S. announced tariffs on China. In retaliation, China announced a 25% tariff on US products such as soybeans and corn. China and the United States are respectively the largest importers and exporters of agricultural products in the world. China's import of U.S. agricultural products is huge, and it is an important part of China's import from the U.S. Especially in terms of soybeans, China is highly dependent on imports from the U.S. According to the data from the General Administration of Customs and the Ministry of Agriculture and Rural Affairs, China imported 24.17 million tons of soybeans from the U.S. in 2023, accounting for 22% of domestic soybean consumption. According to Observer Network, Trump has repeatedly stated during his campaign that he will impose tariffs of over 60% on all Chinese imports. If this materializes, China may impose tariffs on the U.S. as a countermeasure, which may raise the cost of food imports and improve the prosperity of food planting, further improving the prosperity of the seed industry. The importance of food security is reinforced, and reducing dependence on the U.S. is crucial. The necessity of expanding soybean cultivation is increasing, and acceleration is needed. This objectively requires adjustments to the planting structure of existing cultivated land, namely, reducing the planting area of corn appropriately and actively promoting the planting of corn and soybeans. While maintaining the bottom line of corn production, rapid increase in yield becomes the only path, accelerating the planting of genetically modified corn and soybeans becomes inevitable. First, it can immediately increase yield by about 8-12%, and second, the herbicide tolerance trait for corn and soybeans provides the necessary conditions for large-scale planting. The industrialization of biotechnology breeding is the best way to rapidly increase food production and reduce dependence on the U.S. Currently, technology, industry, regulation, varieties, seed production, business models, and farmer awareness are all becoming more mature. According to data from the 21st National Seed Expo, the seed production area of genetically modified corn in 2024 reached 200,000 mu. The bank predicts that the planting area will exceed 50 million mu in 2025, entering the "hundred million mu era" in 2026, which may accelerate thereafter. Agricultural technology urgently requires independence and control to accelerate breakthroughs in key seed technologies. External uncertainties are further increasing, and the urgency of independent and controllable agricultural technology is further heightened. The "neck and neck" problem of seeds needs to be urgently resolved. Seed companies will further strengthen their leading position in technological innovation in the seed industry, and under the new nationwide system, they will obtain various innovative elements such as genetic resources, funds, talents, policies, etc. The bank predicts that leading seed companies may accelerate along two core paths of technological innovation and merger and restructuring, to become stronger. Risk factors: Uncertainties in U.S.-China relations; disturbances from sudden geopolitical events; changes or unexpected political views of Trump's cabinet members; the strength and progress of domestic agricultural policies may not meet expectations; large-scale natural disasters in China; drastic fluctuations in food prices.