IPO Radar | Significantly lowers half-year performance forecast, Zhengda Seed Industry highly dependent on distribution channels

Backed by the Thai billionaire谢氏 family, Xiangyang Zhengda Seed Industry Co., Ltd. is pushing hard to list on the Beijing Stock Exchange. As the seed-industry leader controlled by the Muying Group, with voting control of more than 60%, the company has deep regional footprints. However, its strong shareholder background has not dispelled external concerns about its underlying data quality. Its operating metrics show aspects that differ from those of typical companies in the industry.

In the latest financial data, an abnormal accounting adjustment has drawn market attention. Near 100% of Zhengda Seed Industry’s revenue depends on the distributor channel, but during the preparation of its semi-annual report, due to a serious misestimation of the scale of cross-period returns, it once-off reduced net profit for the first half of the year by more than 25%. This downward revision of profit driven by subjective estimates exposes the fragility of its inventory verification.

Performance powered by “forecasting”

Large-scale profit revisions expose vulnerabilities in the company’s channel control and accounting foundation. Zhengda Seed Industry states that “agricultural seed sales are easily disrupted by uncontrollable factors such as local weather and plant diseases and insect pests.” Because its distributor network is widely distributed, data collection on end-customer return rates is seriously delayed. The company’s early financial recognition has heavily depended on management’s subjective estimates; as of only the first half of 2025, the deviation in related accounting estimates affected the net profit amount by more than 4 million yuan.

Image source: Zhengda Seed Industry performance correction announcement

A business model that relies excessively on a single channel is the core factor behind the above financial risks. In its response to the exchange’s inquiries, Zhengda Seed Industry previously said that “from 2022 to 2024, the proportion of transactions with non-legal-person customers was around 70%, and the sales revenue share of individual customers was over 60%.” To seize the spring sowing market, channel partners usually make large advance pickups in the fourth quarter of the previous year. This pattern masks the true consumption capacity.

The existence of a return mechanism was originally meant to share downstream risks from unsold inventory, but it has instead amplified the intensity of financial volatility. The stock exchange’s inquiry pointed out that “the actual return rate jumped from 8.23% to 13.84%,” and the return amount also surged. When farmers face widespread extreme droughts or flooding, their actual sown acreage will shrink sharply. Seeds that are not used will be returned to the company through the distribution network. In this multi-month circulation cycle, the potential return scale is enough to pierce the original expectations.

Image source: Jiemian News

The sharp reduction in profit not only hits reported performance, but also hits the company’s asset quality during its expansion phase. Hong Jie, a certified public accountant, told a reporter from Jiemian News that “there is an inherent link between the logic for provisioning inventory price decline and the actual return situation. When large volumes of cross-period returns pour into the warehouse, it not only directly reduces revenue for the current period, but also triggers a new round of impairment testing.”

Generally speaking, the viability of some over-season seeds declines, and they can only be handled as discounted grain products, with their value decrease typically exceeding 30%. Because feedback from the channel side is not smooth, it is likely to weaken the underlying asset quality of Zhengda Seed Industry, thereby increasing pressure on the capital side.

Pressure on capital turnover

The match between long-cycle seed production and sales determines the capital-occupation characteristics of seed companies. Zhengda Seed Industry says that “corn seed production and sales have distinctive seasonal characteristics; in a normal production and operating cycle, the product sales timing significantly lags behind the seed production procurement timing.”

Since the seed-production stage is advanced significantly, the company must plan and pay for seed-production costs in advance each spring, and then shift into the processing and sales season after the harvest in autumn. In fiscal year 2024, Zhengda Seed Industry’s self-operated seed-production costs reached 165 million yuan; in fiscal year 2025, its self-operated seed-production area was 47.8k mu. Such a long-cycle, heavy-asset turnover model requires the company to maintain sufficient cash reserves even when sales in end markets are hindered.

Fluctuations in capacity utilization also reflect the risk of a mismatch in supply and demand timing. Data show that from January to June 2025, Zhengda Seed Industry’s total output was 2,763.96 tons, and “capacity utilization was only 18.43%,” far below 59.94% for the full year of 2024.

Image source: Zhengda Seed Industry prospectus

This is mainly attributable to an industry-wide commonality in which processing is concentrated in the fourth quarter through the first quarter of the following year, but the company’s fixed costs and depreciation continue to occur. In addition, from January to June 2025, Zhengda Seed Industry’s net cash flow from operating activities was -44.18 million yuan, indicating that during the period when sales collections are in a low season and returns are settled concurrently, the company’s day-to-day operating capital faces objective outflow pressure.

Sluggish products during the variety iteration process directly reduce inventory turnover efficiency. In fiscal year 2024, aside from core authorized varieties, sales and revenue for some authorized operating varieties contracted. Zhengda Seed Industry explained that the Zhongtai 206 variety “encountered extensive rust disease during planting and推广 in 2023, leading to poor product performance, which reduced market acceptance; and within 2024, there were more returns.”

The accumulation of low-efficiency varieties in inventory not only increases warehousing costs, but may also drag down overall gross margin through markdowns. Although in the first half of 2025 gross margin rebounded to 48.39% due to factors such as lower initial seed-production costs, if the subsequent pipeline lacks effective handoffs from new products with high gross margins, clearing out inventory through price reductions will still squeeze overall profit margins.

The intensity of R&D investment determines the lifecycle of a variety. From fiscal year 2022 to January–June 2025, Zhengda Seed Industry’s R&D spending as a proportion of operating revenue was 7.04%, 5.70%, 5.37%, and 11.01%, respectively. While the percentage rebounded somewhat, the absolute amount of R&D expenses in January–June 2025 was only 9.8585 million yuan.

For Zhengda Seed Industry, to maintain long-term market competitiveness, it must sustain high-intensity R&D investment in new plant varieties.

A fragmented market landscape

In a peer comparison, a reporter from Jiemian News found that Zhengda Seed Industry’s operating scale is relatively small, leaving limited buffer space to withstand systemic risks. Based on calculations in the prospectus, the company’s overall market share for seed products in fiscal year 2024 was about 1.13%.

Constrained by the current situation of China’s seed industry having low market concentration and a relatively fragmented competitive landscape, Zhengda Seed’s gross margin fluctuates significantly across different regions.

Image source: Zhengda Seed Industry prospectus

Zhengda Seed Industry’s annual seed-production area has long remained above 40k mu. The stable production capacity it delivers annually to the end market needs to find actual orders. However, due to changes in local agricultural policy guidance (such as some areas in Yunnan promoting a switch to cash crops like sugarcane) or the impact of regional droughts, farmers’ actual corn planting acreage may suddenly shrink. A sharp drop in such upstream demand will quickly propagate downstream, causing channel partners’ inventory to be unable to be absorbed.

Against the backdrop of intensified competition for existing inventory, defensive推广 often comes at the cost of sacrificing part of the profit space. When the industry enters a cycle of supply exceeding demand, passive inventory reduction becomes a reality pressure faced by enterprises. To seize market share in fiercely competitive regions, the company must continuously increase the推广 efforts and channel incentives for new varieties such as Zhengda 3310 and Zhengda 506.

Zhengda Seed Industry also said that “if it cannot occupy or continuously expand market share, it may lead to a decline in the market share of the company’s main products and a fall in product prices.” Regional distributors have a clear upper limit for their ability to withstand product pileups; in demand-weakened periods, the growth logic driven solely by increasing shipments looks extremely fragile.

In the short term, a high reliance on the distributor model is the biggest risk at the operational level for Zhengda Seed Industry.