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Interface News reporter Zhang Xiaodi

Against the backdrop of food security and seed industry revitalization strategy, CITIC Group has made further efforts in its agricultural sector layout.

Recently, Longping High-Tech (000998, SZ) announced that the company plans to issue 152 million shares through private placement and raise no more than 1.2 billion yuan. CITIC Agriculture Science & Technology Co., Ltd. (referred to as "CITIC Agriculture"), a subsidiary of CITIC Group, plans to subscribe for the full amount at a price of 7.87 yuan per share.

According to the announcement, the net proceeds from this private placement, after deducting issuance expenses, will be used entirely to repay Longping High-Tech's bank loans and replenish working capital.

Longping High-Tech said that through this private placement of funds, it will be able to optimize the company's capital structure, enhance the company's financial strength for high-quality R&D investment, operational development and industrial integration, and further enhance the company's leading position in the seed industry.

According to the official website, Longping High-Tech was established in 1999 by Academician Yuan Longping as the main initiator. It is a leading seed company in China that integrates breeding, production and promotion. In 2000, Longping High-Tech was listed on the Shenzhen Stock Exchange. In 2016, CITIC Group invested in Longping High-Tech and became its largest shareholder. Longping High-Tech then became the core platform of CITIC Group in the field of crop breeding.

Longping High-Tech said that in 2022, Longping High-Tech and its major industrial subsidiaries were selected into the list of national seed industry enterprises, becoming the main force in implementing the national food security strategy and implementing the "Seed Industry Revitalization Action."

CITIC Group said that since its investment, it has been committed to building Longping High-Tech into a world-class seed group, promoting nearly 200 million mu of seeds worldwide and about 120 million mu of seeds in China each year, increasing grain production by 2.5 billion kilograms and helping farmers increase their income by 12 billion yuan.

CITIC Group said that Longping High-Tech has now entered the top eight seed companies in the world. Its hybrid rice seed business is the world leader, with a domestic market share of nearly 20%. In the foreign market, it mainly develops in countries and regions along the "Belt and Road" such as Africa, especially in the Philippines and Pakistan.

The domestic hybrid corn seed promotion area is 60 million mu, with a market share of about 10%; the Brazilian corn seed business has a market share of more than 20%, ranking among the top three, and has jumped to second place in the winter corn seed market. Specialized seed businesses such as hybrid millet, edible sunflower, pepper, cucumber, etc. maintain their leading position in various regional markets across the country.

If this issuance is completed, CITIC Group's total equity ratio in Longping High-Tech through its subsidiaries such as CITIC Agriculture will increase from 17.36% to 25.93%. The lock-up period for the subscribed shares is 18 months.

Longping High-Tech said that CITIC Group's full subscription of Longping High-Tech's private placement of shares reflects its firm determination to actively implement the national food security and seed industry revitalization strategy, as well as its firm confidence in the company's development prospects. CITIC Group said that this subscription is to thoroughly implement the deployment of the seed industry revitalization action plan, adhere to long-term investment, be patient capital, and firmly support Longping High-Tech's high-quality development.

As of the close of August 9, 2024, Longping High-Tech's share price closed at 10.07 yuan. CITIC Agriculture's subscription price this time is lower than the current share price, which has sparked discussion from the outside world.

In this regard, Shen Meng, director of Xiangsong Capital, told Jiemian News that CITIC Agriculture intends to subscribe at the above price, which means that the book profit has reached 25%. Seed research and development belongs to the long-term industry. The scale of this private placement is large. Such pricing also takes into account the time discount of the lock-up period and the risk discount of a one-time large-scale additional issuance. The discount reflects the compensation for patient capital.

It is worth mentioning that Longping High-Tech has stated on many occasions that it will continue to focus on the crop seed industry and implement the "3+X" strategy for category goals, namely, to continue to consolidate the status of the three core seed categories of rice, corn and vegetables, and to develop both endogenously and exogenously, striving to achieve the strategic goal of entering the top five seed companies in the world by 2025.

According to the standards of the top five industries in the world, sales revenue must reach 10 billion.

To achieve this goal, in recent years, Longping High-Tech has reduced costs and increased efficiency, divested a number of financial-like businesses unrelated to its main business, and successively acquired a number of outstanding seed companies such as Lianchuang, Xuntian, and Sanrui.

In August 2023, Longping High-Tech spent 800 million yuan to acquire 7.14% of the shares of Longping Agricultural Development Co., Ltd. (hereinafter referred to as "Longping Development"), and its shareholding ratio increased to 49.42%, and Longping Development was consolidated.

This move not only created the largest acquisition of Longping High-Tech in recent years, but also reversed the revenue situation of Longping High-Tech.

Longping Development is a typical representative of China's seed industry going global. Its main business is the research and development, breeding, production, processing and sales of corn seeds. Its industrial layout includes South Africa and South America in addition to China. Its overseas business is mainly carried out in Brazil through its subsidiary Longping Brazil, and it occupies a leading position in the Brazilian corn market.

After the consolidation of Longping Development, in 2023, Longping Development achieved a revenue of 9.223 billion yuan, a year-on-year increase of 22.45%, bringing it one step closer to its strategic goal.

But it is worth mentioning that frequent mergers and acquisitions as well as unstable performance have led to heavy debt pressure on Longping High-Tech.

According to public financial reports, since 2019, Longping High-Tech's performance has declined significantly compared with the previous period, and its attributable net profit in 2019 and 2022 recorded losses, with a total loss of 1.13 billion yuan, while the attributable net profit in the other three years totaled only 380 million yuan.

According to Longping High-Tech's previous performance forecast, the company's attributable net profit in the first half of 2024 is expected to be 90 million to 120 million yuan, but due to the increase in exchange losses, its non-net profit will still be a loss of 290 million to 220 million yuan.

In terms of liabilities, Longping High-Tech also admitted that the company's current asset-liability ratio is high and the amount of financial expenses is large. As of the end of March 2024, Longping High-Tech's total liabilities were 16.89 billion yuan, and its asset-liability ratio reached 62.80%, which was 34.19% higher than the industry average.

Among them, short-term debts and non-current debts due within one year totaled 6.52 billion yuan, while its book cash and cash equivalents during the same period were only 3.087 billion yuan.

Longping High-Tech said that the company currently has a large amount of bank loans and a large amount of financial expenses. The company needs to raise funds to reduce its financial burden, lower financial risks, and ensure the company's continuous, stable and healthy development.

According to simulation calculations, after the completion of this issuance, Longping High-Tech's debt-to-asset ratio will drop from 62.80% to 58.34% at the end of March 2024.

In addition to debt pressure, Longping High-Tech stated that the high-quality development of seed companies and technological self-reliance objectively require increased R&D and industrial integration. As the company's business scale will continue to grow, the demand for operating capital will continue to increase. The funds raised this time will help enhance the company's financial strength and strengthen its main business.

Interface News noted that Longping High-Tech stated during an institutional survey on August 7 that the company is currently actively responding to the growing opportunities in the genetically modified corn market, insisting on deepening the research and development of basic varieties to ensure the excellent quality and performance of genetically modified products, while achieving strict management and traceability of the entire process to meet the high standards of the market.

At the same time, Longping High-Tech has established close cooperative relations with a number of transgenic trait companies and scientific research institutions that have obtained safety certificates. Through extensive and rigorous variety testing, it has accelerated the pace of breeding technology innovation and launched products with excellent and stable performance. As the market penetration rate of transgenic corn gradually increases, market demand is expected to continue to expand.