China Galaxy Securities: Central state-owned enterprises lead the agricultural seed industry to continue writing a new chapter of high-quality mergers and acquisitions in the seed industry.

China Galaxy Securities released a research report stating that as the reform of state-owned enterprises enters a new phase of comprehensive deepening reform, the core competitiveness of central SOEs is expected to be strengthened in this round of state-owned enterprise reform. In the context of increasing policy support, the heat of mergers and acquisitions among listed companies has significantly increased in the past 24 years. In the agricultural sector, seed industry is the sub-industry with the highest proportion of central SOEs, and the future structure of the seed industry in China may gradually concentrate towards leading companies through high-quality mergers and acquisitions. Key points from China Galaxy include: The comprehensive performance of agricultural central SOEs has surpassed the industry average over the past 23 years. There are a total of 33 central SOEs in the agriculture, forestry, animal husbandry, and fishery industry, accounting for 30%. Mainly focused on the sub-industries of planting and processing, with the seed industry being the most prominent (central SOEs accounting for 60%). After the start of the new round of state-owned enterprise reform actions over the past 23 years, the performance of agricultural central SOEs has significantly outperformed the overall industry index, with the seed industry central SOEs also performing better than the SW Seed Index (achieving excess returns of about 6.7% as of November 15, 24). Seed industry central SOEs have scale advantages and higher dividend enthusiasm. China has established a national enterprise assessment index system combining "one profit and five ratios" and "one enterprise, one policy". Comparing central SOEs to non-central SOEs, it can be seen that the market value and revenue scale of seed industry central SOEs are much higher than local SOEs and non-central SOEs. In the first three quarters of 24, four central SOEs in the seed industry were affected by factors such as falling grain prices, fierce industry competition, and off-season sales, leading to varying degrees of losses or declines in performance. However, looking at the forward-looking indicator of Q3 end contract liabilities, the performance in the sales season of 24/25 is well supported. Furthermore, seed industry central SOEs show higher enthusiasm for dividends, with the average total dividend amount reaching 41.2155 million yuan over the past 23 years, much higher than local SOEs and non-central SOEs, with three central SOEs each conducting one dividend distribution. The heat of mergers and acquisitions among central SOEs is increasing, and high-quality mergers and acquisitions are the path to the development of the seed industry. The China Securities Regulatory Commission released the "Six Measures for Mergers and Acquisitions" in September 24, further stimulating the vitality of the mergers and acquisitions market. Central SOEs play a key role in promoting the activity of the mergers and acquisitions market. In the seed industry, the market competition is intense and the competition landscape is relatively fragmented. The future market concentration may increase rapidly and will largely rely on high-quality mergers and acquisitions to achieve this. Currently, the three major "national teams" in the seed industry are represented by Yuan Longping High-Tech Agriculture as the "CITIC series", by Syngenta as the "ChemChina series" (China National Seed Group, Winall Hi-tech Seed), and by China Investment Corporation as the "CIC series" (Hefei Fengle Seed). In recent years, under the background of accelerating the revitalization of the seed industry, all have frequently engaged in mergers and acquisitions under the development strategy of "internal development + external extension". In the future, they are expected to leverage platform, technology, capital, and resource advantages to further enhance the competitiveness of listed seed companies. Investment advice In terms of individual stocks, considering the company's technical strength and reserve of high-quality varieties, relying on the synergy of the three major "national teams" of the "CITIC series", "ChemChina series", and "CIC series", as well as the potential increase in performance brought about by the acceleration of the commercialization of genetically modified crops, it is recommended to pay attention to relevant stocks such as Yuan Longping High-Tech Agriculture (000998.SZ), Winall Hi-tech Seed (300087.SZ), and others. Risks: The risk of state-owned enterprise reform progressing slower than expected, the risk of incomplete understanding of related policies, the risk of policy implementation falling short of expectations, the risk of price volatility in the seed industry, the risk of natural disasters.