Origin Agritech receives approval for new corn hybrid varieties
Origin Agritech Ltd. (Nasdaq: SEED) reported this morning that the Ministry of Agriculture in China has approved two new corn hybrid varieties of its product line for nationwide distribution during the next sales season.
The Beijing-based small cap said the approval, which includes two new corn seed products known as Lin Ao 9 and Ao Yu 28, will extend its geographic reach throughout China. Since both products were given nationwide approval, they may be sold into any regions of China, according to Origin.
“We did have the reach before, excluding Taiwan and Hong Kong, but this helps us gain more seed coverage,” said Irving Kau, vice president of Finance at Origin.
Origin currently has 4.8% of the corn seed market, according to Kau, which is estimated to be a $1 billion market. According to Eddie Cheung, head of investor relations for Origin, the company sells in 30 of the 32 provinces in China.
With today’s approval, the company now has over 55 total corn hybrids approved for sale into the marketplace next year.
Revenues from corn products comprised roughly 75% of total revenues in 2007, and are expected to continue to be the main revenue driver going forward, according to the company.
“Their geographic reach is pretty expansive within the country,” said Cheung. “In terms of market share, the corn seed market in China is really fragmented, so there’s really not a dominant player with a majority market share. [But] I think having a broader portfolio product mix should help capture market share for the company.”
Aside from expanding its geographic reach, Origin said the approval will increase its marketing flexibility for the use of its products as well as the ability to cross products into additional regions if the products are determined to be suitable for the given regions.
“These two corn seeds that were approved for national distribution are more environmentally adaptable to both [the northern and southern regions of China], so they can be marketed nationally,” said Cheung. Since they are not specific to a particular region, in a way they’re more robust.”
Additionally, Kau says before the national approval, the company had to obtain national approval province by province.
“[There’s a] three-year process for approvals which hinders your ability to market quite a bit,” said Kau.
Looking ahead, the approval also serves as a platform for the company to launch genetically modified seeds.
“As we keep on gathering [national approval] we’re able to cover the country better, provide better product coverage and also provide the platform to launch into the genetically modified products,” said Kau. “We’re then able to genetically modify these seeds and in essence create super seeds. It’s very exciting because that’s where the whole industry is headed.”
Origin has roughly five prospective genetically modified products in the pipeline now, according to Kau, and one is in the fifth step, which is right at the stage of approval.
“Once some of those get through that [approval process], our company will enter a whole other category,” said Kau.
Kau says Origin expects its fifth-stage product to be approved this year.
“This would be the first genetically modified product in all of China and China is the second largest corn market in the world so, it’s significant,” said Kau. “And we would be the first.”
Origin Agritech is an agricultural technology company that develops and grows crop seeds to farmers throughout China and parts of Southeast Asia.
Shares of Origin Agritech (SEED) edged down 2.53%, or $0.14, to $5.39 at 2:41 p.m. ET. Shares of Origin have been trading in the range of $5.23 to $14.99 for the past 52 weeks.
