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Wednesday, September 4, 2019
Origin Agritech Limited (NASDAQ:SEED) ($5.09; $16.2M market cap), an agricultural technology and rural e-commerce company, remains in our focus. Last weekend, the state-controlled media Xinhuanet published an article that briefly introduced different countries’ adoption of GMO products for their agriculture. The importance of this article is not about the content, rather the fact that now the well-known state media has started reporting about GMO related topics, which in our opinion, is an indication of the government’s openness towards GMO technology and a possible positive sign for the eventual GMO commercialization.
This information arbitrage (InfoArb) development comes on the heels of details surrounding a media report that we discussed last week that there was a global biotechnology research conference held in Beijing on August 26, 2019, during which the ISAAA (International Service for the Acquisition of Agri-biotech Applications) introduced the current status of global GMO agriculture products’ commercialization, and that the application of GMO technology could reduce the use of agricultural chemicals’ in the field.
We will continue to monitor developments in China for more InfoArb on SEED before newsflow reaches U.S. shores, as it relates to SEED potentially being granted a GMO license in China.
Thursday, August 29, 2019
Origin Agritech Limited (NASDAQ:SEED) ($5.54; $17.7M market cap) – On August 27, 2019, we highlighted that SEED, an agricultural technology and rural e-commerce primarily in China, announced an agreement with Biotechnology Research Institute of Chinese Academy of Agricultural Sciences to speed up the commercialization of genetically modified insect resistance and glyphosate tolerance corn traits in China. We believe this announcement by SEED is consistent with the notice issued by the Agriculture Department of China on July 2, 2019, calling for more research on breeding new GMO species, claiming that based on the government’s Thirteenth Five-Year Plan (2016-2020), the process of GMO corn and soybean commercialization needs to speed up.
On August 27, 2019, an article in China introduced that there was a global biotechnology research conference held in Beijing on August 26, 2019, during which the ISAAA (International Service for the Acquisition of Agri-biotech Applications) introduced the current status of global GMO agriculture products’ commercialization, and that the application of GMO technology could reduce the use of agricultural chemicals’ in the field. It is believed that this kind of conference, inviting reporters to attend, is part of the strategy by the government to conduct more promotion and communication about the GMO technology to the public.
Regarding the players in this GMO sector, a Caixin article (Caixin is known for its close relationship with the central government in China) published on Sohu.com Limited (NASDAQ:SOHU) in November 2018 listed the companies/institutions that were already in the stage of waiting for the GMO safety certificate from the government. Four names were mentioned:
- China Agricultural University
- Zhejiang University
- Beijing Dabeinong Technology Group Co.,Ltd. (public company listed on China Mainland A share market with ticker of SHE: 002385;
- Beijing Origin Seed Limited (SEED).
It stated that China Agricultural University was developing the glyphosate tolerance corn traits, and the other three entities Zhejiang University, Beijing Dabeinong Tech, and SEED were developing corn traits with both insect resistance and glyphosate tolerance. We can see that among these four companies/institutions, only two entities are business enterprises, one is listed in China Mainland A share market and the other one SEED is listed on NASDAQ. (the other two entities are universities).
It is unclear if there are more companies/institutions that have submitted their applications for the GMO safety certificate since then. However, it’s worth noting that in the last two trading days, Beijing Dabeinong Tech (002385) hit the 10% max up threshold on the 28th and followed that move with another 3.5% in last night’s trading session.
Beijing Dabeinong Tech has a market cap of about US$3.4 billion. Although we cannot say that the recent move is definitely 100% due to the GMO optimism, we should not rule out this possibility. We believe that Beijing Dabeinong price action is an encouraging signal for SEED, because it could potentially bring much more awareness to the SEED, which currently has a market cap of $17.7 million, recently posted a strong quarter of revenue and earnings and successfully addressed NASDAQ listing compliance issues.
We have yet to perform all of the necessary deep dive on-the-ground due diligence on SEED in China. Still, although SEED is a highly speculative story, we continue to believe that if it were to be awarded one of the coveted GMO licenses, we believe its shares would rise substantially on the potential of the company to generate revenue and earnings at several multiples of their current run rates.
Tuesday, August 27, 2019
Origin Agritech Limited (NASDAQ:SEED) ($5.09; $16.2M market cap) an agricultural technology and rural e-commerce, announced an agreement with Biotechnology Research Institute of Chinese Academy of Agricultural Sciences to speed up the commercialization of genetically modified insect resistance and glyphosate tolerance corn traits in China.
“The new collaboration agreement deepens our cooperation with BRI and mainly focuses on related research for commercialization of the double stacked corn trait of insect resistance and glyphosate tolerance. Origin and BRI will join together to apply for government sponsored funds and share research facilities and capabilities, as well as the potential benefits. Both Origin and BRI will also work together to promote the commercialization of the stacked corn trait, which Origin has been developing based on the fundamental research from CAAS.
According to the “Thirteenth Five Year State Science and Technology Innovative Plan” published by the Chinese government in 2016, the Chinese government has set a target for the commercialization of corn seed GMO technologies during the central government’s Thirteenth Five-Year Plan, which ends in 2020.”
We have been monitoring SEED for several months now based on hype surrounding its potential receival of a GMO license from the Chinese government. Today’s release suggests that the company is preparing for that approval, even though based on the performance of the stock, the market has been taking the GMO approval event with a grain of salt. See our past coverage on SEED here.
Wednesday, August 21, 2019
On June 5, 2019, the Company was notified by the NASDAQ Stock Market (“NASDAQ”) that it was not in compliance with the NASDAQ listing rules regarding the minimal requirements for stockholders’ equity. The non-compliance was determined based on the balance sheet of September 30, 2018, in the Annual Report on Form 20-F for fiscal year 2018 filed on June 3, 2019. Since September 30, 2018, the Company increased its stockholder’s equity mainly through an equity financing in January 2019. The Company also applied to change from the NASDAQ Global Select Market to the NASDAQ Capital Market, the application for which was approved and trading on NASDAQ Capital Market for the ordinary shares of the Company commenced August 19, 2019. The Company regained full compliance with the listing standards of NASDAQ.
We have been monitoring SEED for several months now based on hype surrounding its potential of receival of a GMO license from Chinese government. See our past coverage on SEED here.
Tuesday, July 16, 2019
- Sales of $12.2 million vs $0.53 million in the prior year
- EPS of $0.04 vs a loss of $1.51
- Strengthened balance sheet
“During the first half year of FY2019, the Company improved its overall balance sheet by completing an equity financing of US$7.74 million through the announced deals with Longhan Investment Management Co and Tiger Capital Fund SPC. The equity financing includes the issuance of 1,397,680 ordinary shares and warrants to purchase 1 million of the Company’s ordinary shares. The total equity of the Company increased to RMB43.6M (US$6.5 million), compared to the negative equity of RMB23.3 million as of September 30, 2018. Regarding the earlier equity financing with L2 Capital, the Company has withdrawn the F3 registration statement filing with SEC dated November, 2018 and there are no further outstanding shares or warrants relating to the equity financing with L2 Capital.”
We have been monitoring SEED for several months now based on hype surrounding its potential of receival of a GMO license from Chinese government. The license will be given to only a few companies. However, it’s nice to see that the current business is finally having some success. See our past coverage on SEED here, including our research note that discusses the GMO “drama”.
Tuesday, June 4, 2019
Origin Agritech Limited (NASDAQ:SEED) ($6.08; $17.5M market cap) is an agriculture technology and rural e-commerce company. We have been monitoring SEED for several months now based on hype surrounding its potential of obtaining a GMO license from China which will only be given to a few companies. In our April 24, 2019 note, we stated:
“SEED is well-positioned once the commercialization of the corn GMO technology is approved by the Chinese government and the potential market value of this market is worth billions of US dollars, according to the press release in August 2018 by the company:
“Origin is the leading technology provider for corn seed GMO technologies in China. According to the “Thirteenth Five Year State Science and Technology Innovative Plan” published by the Chinese government in 2016, the Chinese government set to target the commercialization of corn seed GMO technologies during the central government’s Thirteenth Five-Year Plan, which ends in 2020.”
We are viewing the eventual filing of the 20-F as the first potential near-term catalyst. We feel this could cause shares to pop as the Company will likely retain its NASDAQ listing.”
Yesterday, after the close, SEED filed its 20-F. As we stated above, we felt this would be the first positive catalyst for the Company in potentially obtaining a GMO license. It seems the Company has taken two steps in nearing that goal.
First, the Company has sent in its application for a GMO Biosafety certificate, a measure required before being able to obtain a GMO license. Quote from 20-F:
“A production license from the Ministry of Agriculture is required for the production of GMO seeds (the “GMO License”). To obtain a GMO License, the business must obtain a safety certificate of agricultural GMO and passed variety examination, plant and breed in the designated areas, adopt appropriate safety administration and precautionary measures and comply with other conditions provided for by the Agricultural Department. We are in the process of applying for GMO Biosafety certificate as application were submitted in April, 2019.”
Second, the company entered into a cooperation agreement with a government entity to form a new Company focused on SEED’s GMO assets. Quote from 20-F:
“On May 17, 2019, the Company entered into a Cooperation Framework Agreement with Beijing Changping Technology Innodevelop Group (BC-TID), an entity owned by the government of Changping District of Beijing City. Under this agreement, BC-TID and Origin will form a new entity, which 51% and 49% of equity interests would be owned by BC-TID and the Company, respectively. Based on the agreement, Beijing Origin will contribute the headquarters building in Beijing and certain of its seed technology assets related to genetically modified seeds to the new entity. BC-TID will fund the joint venture with a total of RMB204 million in cash. Also agreed under this agreement, the new entity will pay off the bank loan of RMB78 million, which is collateralized by the Company’s headquarters building in Beijing, upon receiving the RMB204 million investment from BC-TID. The transaction is subject to the satisfaction or waiver of several conditions set forth in the agreement.”
While it seems the company is giving up a 51% interest in the new entity, we feel this is a major positive for SEED shareholders. The fact that the city government’s partnership with the company in the GMO seed area makes us further believe that the company is in a good position in this field. In addition, the potential RMB204 million cash investment from the government backed group for the 51% equity interest values the new entity at RMB400 million, which gives SEED’s 49% interest a face value of RMB196 million (~US$28.4 million). Investors should note that this is only a framework agreement and an official deal has not yet closed.
In addition, according to the company’s 20-F, it completed its previously announced share subscription transaction with Tiger Fund, where about 1.4 million shares were issued at an average price of $5.54 per share. The company’s shares outstanding after this transaction is estimated to be ~4.9 million.
In October 2018, we identified a strategic investor, Longhan Investment Management, Co., Ltd (“Longhan”) and entered into a Share Subscription Agreement with Longhan, and the agreement was later assigned to Tiger Capital Fund SPC (“Tiger Fund”), Tiger Fund purchased 1,397,680 Shares of the Company’s common stock for an aggregate purchase price of US$7,743,147.20.