Understanding a listed company must be familiar with the industry environment in which the company is located. Due to the different financial characteristics shown by different industries, in order to help investors grasp the internal logic of industry development from a financial perspective and improve investors' value analysis capabilities for listed companies in different industries, the Shenzhen Stock Exchange Investor Service Department jointly launched a series of investment education articles "Looking at the industry from a financial perspective". This article was provided by the Research Group of the Agricultural, Forestry, Animal Husbandry and Fisheries Industry of the Changjiang Securities Research Institute.
We will start from an investment perspective, combine different investment ideas of different agricultural sub-industry such as breeding, feed and seed industry, and use two major financial indicators: growth indicators and profit indicators to help investors learn to analyze the growth and profitability of agricultural, forestry, animal husbandry and fishery enterprises.
1. Analyze the future revenue or profit growth space of the company from growth indicators
Growth indicators mainly refer to financial indicators that can be directly or indirectly be cashed into actual revenue or profit in the future, including indicators such as capital expenditure, R&D expenditure, and operational assets.
breeding industry can focus on capital expenditure and biological assets indicators. The growth of general breeding enterprises is mainly reflected in the production capacity indicator. Enterprises plan production capacity in the next few years by adjusting capital expenditure (land and farm) and productive biological assets (producing sows or ancestral chickens). Therefore, the growth of the breeding enterprises can be judged based on the capital expenditure and biological assets of the breeding enterprises. When it is at the high point of the industry cycle, breeding companies increase capital expenditures and purchase biological assets, these capacity will be cashed into outputs in the next few years, and may eventually be reflected in sales.
feed companies can focus on sales growth and profit growth indicators. The feed industry is mainly affected by agricultural product prices and breeding feed demand. Feed companies with excellent growth potential often have strong channel, management and cost advantages. These advantages will help feed companies obtain more stable revenue and profits. Therefore, the growth of feed companies can be indirectly reflected through sales growth and profit growth indicators.
seed companies can focus on R&D-related indicators. The R&D investment of seed companies is an important support for future returns. Through R&D investment, enterprises hybridize and breed seeds. After developing seeds with excellent traits, they enter the market after being approved by the national variety. With its excellent traits and yields, it may eventually be converted into considerable operating income. Therefore, R&D-related expenditures are one of the important manifestations of the growth of seed companies.
2. Judging the operating efficiency, cost control and product competitiveness of the enterprise from profit indicators
profit indicators mainly include indicators such as gross sales profit margin, net profit margin and changes in year-on-year . The market space of the agricultural industry is relatively stable. Enterprises usually increase the market share of by improving product competitiveness and strengthening marketing methods. Therefore, the profitability of the company can be understood through the above indicators.
breeding companies can focus on net profit indicators. From a price point of view, the degree of homogeneity of products in the breeding industry is relatively high, and it is difficult for enterprises to obtain a significant premium through channels or marketing. At the same time, because the market concentration is low, the breeding industry is obvious, and it is difficult for enterprises to effectively control the price of slaughter. Therefore, cost control has become an important reflection of corporate profitability. From the perspective of cost, the cost of the breeding industry mainly includes feed costs, labor costs, management costs and depreciation costs. Breeding companies can optimize the overall costs by optimizing the feed structure, improving management efficiency and improving the quality of ancestor varieties, and these capabilities will be reflected in the net profit indicators.
feed companies can focus on gross profit margin indicators. From the perspective of cost, feed companies' raw materials are mainly affected by agricultural product prices, and it is difficult for different companies to show obvious differentiation at the cost side.However, from the perspective of price, different feed companies have a certain differentiation, mainly because some companies can provide different additional products and services, including integrated feed epidemic prevention services, customized feed, supporting vaccine , etc. These additional products and services allow feed companies to increase their revenue while also establishing their brand image, thereby obtaining a higher premium, and these capabilities can be effectively reflected in the gross profit margin indicator.
seed companies can also focus on gross profit margin indicators. On the one hand, grain prices will significantly affect the gross profit margin and profit level of seed companies; on the other hand, seed R&D is the core competitiveness of the company. When the seeds developed by seed companies have relatively better traits and yields, they are more likely to pass the national variety review and can obtain higher pricing in the seed market, which is ultimately reflected in the company's gross profit margin level.
It should be noted that the above financial indicators are just an entry point for us to understand the situation of the enterprise. In actual investment, we also need to make comprehensive judgments and decisions based on macro indicators, industry development, market conditions, etc.
