Tianxiang Investment: this year or the year of strengthening Agricultural Policy (list)

Guoxin Securities

Be optimistic about "seed industry and animal husbandry"

We expect that agricultural subsidies will grow steadily, and the seed and agricultural machinery industries related to agricultural production will directly benefit from the policy of strengthening agriculture and benefiting farmers. The subsidy for agricultural machinery was 13 billion yuan in 2009, 4 billion yuan in the same period in 2008, 16 billion yuan in 2009 and 13 billion yuan in the same period in 2008. In the past two years, the profitability of the seed industry has gradually improved with the intervention of the improved seed subsidy policy. The leading enterprises in the region are the direct beneficiaries of these policies, and the efficiency of enterprises has improved significantly. This trend is expected to continue in 2010.

In addition, we expect the pace of urbanization reform in second-and third-tier urban and rural areas to accelerate, and suggest to seize the opportunities brought by the wave of mergers and acquisitions within the animal husbandry industry in second-tier cities. We judge that the stage of rapid growth of animal husbandry consumption in second-and third-tier cities will be accompanied by the long-term continuation of China's urbanization, and the regional leading enterprises of animal husbandry will be the biggest beneficiaries.

Therefore, we suggest that we should pay attention to the seed industry and animal husbandry plate in turn.

● We are optimistic about the profit prospects of regional seed companies with significantly improved performance in the next two years, followed by Fengle seed industry, Denghai seed industry and Dunhuang seed industry.

● we are optimistic about the second-and third-tier animal husbandry enterprises with capacity expansion planning and execution, and the related companies are New Hope, Zhengbang Science and Technology, Shengnong Development and Haida Group in turn.

Tianxiang Investment believes that for the agricultural sector, attention should be paid to its two main investment lines: first, the new policy in the context of food security; and second, the rise in the price of agricultural products under inflation expectations.

At the beginning of the new year, we took an inventory of the performance of the agricultural sector in 2009 and the major events in the agricultural industry, in order to analyze the driving force behind the performance of agricultural stocks and the trend of agricultural policy. Looking forward to 2010, we believe that attention should be paid to two main lines of investment-new policies in the context of food security, and higher prices of agricultural products in the context of inflation expectations.

The Agricultural Unit performed mediocre in 2009

Looking back in 2009, the agricultural sector ranked 32nd in the Tianxiang industry, rising 85.79% for the whole year, while the Shanghai Composite Index rose 79.78% over the same period. Judging from the relative earnings of the agricultural sector against the Shanghai Composite Index of just over 6 percentage points, agricultural stocks performed mediocre throughout 2009.

In this regard, we mainly review the three elements of agricultural policy, price and valuation in 2009:

First, as far as policy is concerned, due to the impact of the financial crisis, the focus of the policy in 2009 is on "maintaining growth", including the introduction of revitalization plans for a number of industrial industries, so the status of agricultural policy is not prominent. However, we can still see that the introduction of several relatively large agricultural policies still play a certain leading role in the trend of the agricultural sector. for example, the state raised the minimum purchase price for rice, the Central No. 1 document was released, the two genetically modified varieties passed safety certification, and the Central Rural work Conference was held.

Second, as far as prices are concerned, the price increase of agricultural commodities in 2009 is weaker than that of industrial products, which can be seen from the comparison between foreign copper futures prices and corn futures prices. for the whole year, wholesale corn prices rose by about 27%, soybeans by about 5%, rice by about 2% and wheat by about 11%. Agricultural prices do not support the rise of the agricultural sector as a whole, but cotton and sugar are both up more than 50% due to expected production cuts. Support cotton and sugar stocks upward.

Third, in terms of valuation, we see that the agricultural sector performance repair is relatively slow, resulting in the agricultural sector for the market premium has been at a high level.

What is noteworthy is that in 2009, four companies belonging to the agricultural sector, Haida Group, Shengnong Development, Huaying Agriculture and Oriental Gardens, were listed. These four companies are of excellent quality, expanding the market capitalization of the industry sector. We believe that there will be more high-quality agricultural companies listed in the future, which will expand the market capitalization of the agricultural sector and speed up the performance repair of the industry.

Prospect of Agricultural Policy in 2010

We believe that in 2009, after the economic crisis, 2010 may be a year for strengthening agricultural policy. This year's Central Committee document No. 1 is expected to once again focus on the issue of agriculture, rural areas and farmers, and the content will be the discussion draft of the Central Rural work Conference before the festival, "the CPC Central Committee and the State Council on strengthening the overall planning of urban and rural development." some opinions on further strengthening the foundation of agricultural and rural development (discussion draft). The discussion paper emphasizes that the future rural work should "promote the overall planning of urban and rural areas, strengthen the agricultural foundation", and promote "two-wheel drive" of urbanization and new rural construction.

We believe that the policy of strengthening agriculture and benefiting farmers this year may mainly focus on the following aspects: first, to promote the employment and settlement of the transferred agricultural population in cities and towns; second, to increase the construction of people's livelihood, such as medical care and infrastructure in rural areas; and third, to ensure agricultural supply. change the agricultural business model and so on. In terms of ensuring agricultural supply, specifically, the state will increase support for breeding, increase four subsidies, raise the minimum purchase price, and improve the land circulation policy and grain circulation system.

In addition, we compared the earnings of the agricultural sector in each quarter of the past three years, and found that the agricultural sector is very likely to obtain relative gains in the first and fourth quarters of each year. There are two main reasons: first, agricultural policies are mostly introduced in the first and fourth quarters of each year; second, the production and sales of agricultural sub-industries are mostly seasonal, and the fourth quarter of this year and the first quarter of the next year are mostly the peak sales season. The discovery of this law is helpful for investors to better grasp the investment nodes of agricultural stocks.

Investment and policy

Tianxiang investment

Keep an eye on "food security + inflation"

In 2010, we recommend that investors pay attention to two main investment lines in agriculture:

First, the instability of domestic grain production, the tightening of global food and the rise of foreign food prices have brought about food security problems, which will prompt the government to pay more attention to "agriculture, rural areas and farmers" and strengthen the introduction of agricultural policies. improve the status of agriculture in the policy. The seed industry and the planting industry with land resources will benefit the most from the policy, focusing on the overall investment opportunities of the plate under the promotion of the strategic position of the seed industry.

Second, inflation has brought about a rise in agricultural prices, with significant benefits for non-grain agricultural products, especially pork, fruits and vegetables (ketchup, sugar) and high-end seafood industries.

We recommend that investors look for stocks whose performance has improved rapidly in these two main lines, and that they should pay attention to stocks with lower valuations. The main concerns are as follows:

● seed industry: landing sea seed industry

● planting Industry: the Northern Wild Land and the Green Land

● Pig farming: Shunxin Agriculture, Zhengbang Science and Technology, Shengnong Development

● high-end seafood: easy to take charge of, Zhangzi Island

● ketchup and sugar industry: Tunhe and Nanning sugar industry of Cofco

● low valuation: Tongwei shares