Noposion is an agrochemical preparation leader in China. With its in-depth understanding and keen insight into agriculture, the Company has developed a specialty fresh consumer business as its second growth curve. Noposion has established a development strategy with blueberries grown in substrate as the blockbuster product and has a first-mover advantage in Yunnan orchard resources, patented varieties, early-maturing technology application, nationwide sales channel construction, etc. The　Company has also achieved the phased goals for output, sales and growth. In the ongoing context where domestic winter and spring blueberries are in short supply, the Company’s early-maturing blueberries are likely to achieve growth in both shipment and prices. At present, the blueberry business has shown strong growth momentum, with considerable earnings resilience. At the same time, Noposion’s agrochemical preparation business continues to maintain its leading edge in the industry and is likely to help the specialty fresh consumer business in terms of funds, technologies and talents. We believe that the blueberry business has cultivated a new growth pole for the Company and has created medium- and long-term growth upsides, which may build a new “Noposion”. At present, the turning points of the Company’s blueberry business and overall performance growth have arrived, and there is considerable room for growth in earnings and market cap. We initiate coverage with a “BUY” rating and a target price of Rmb12 on 16x 2024E PE.

The agrochemical preparation leader venturing into the specialty fresh consumer field.

Leveraging its in-depth understanding of the agricultural industry over the past three decades, Noposion has accelerated the expansion in the specialty fresh food business in recent years, creating a second growth curve. After years of exploration, the Company has established a specialty fresh consumer business with blueberries grown in the substrate as the blockbuster product, built a specialty fresh product matrix, and focused on a winter-spring sales strategy. At present, the agrochemical preparation business has contributed stable earnings to the Company, and the earnings of specialty fresh consumer business has begun to materialize. In 1H23, the revenue of the specialty fresh consumer business increased significantly (+259 % YoY), accounting for 16% of the Company's overall revenue.

Yunnan provides timely and geographical advantages for blueberries grown in substrate, and the supply side will usher in major changes. At present, the domestic supply of blueberries shows a strong seasonal feature. Traditional domestic cultivated blueberries are concentrated from May to Aug every year, which makes it difficult to meet the growing demand for fresh blueberries. Imported blueberries are expensive and in relatively limited supply, and the quality freshness is weak. As one of the most suitable production areas for blueberries in the world, Yunnan is easy to cultivate early-maturing blueberries with good quality thanks to its unique climate and　geographical conditions, which can effectively supplement the domestic blueberry supply in winter and spring. However, due to factors such as altitude, regional climate and land policy, there are currently very few orchards available for blueberry growing in Yunnan. Therefore, blueberry planting companies with sufficient land resources in Yunnan will gain core competition barriers. In addition, high-quality patented varieties and the technology application will also promote the realization of the early maturity of blueberries. We believe that under the current supply and demand pattern of overall short supply and significant seasonal shortage of blueberries, enterprises with the first-mover advantage of garden resources and blueberry planting technology in Yunnan are likely to fully enjoy the strategic dividends of blueberry industry development.

Land, technology and sales build strong competitive barriers, and blueberry business turning point has reached.

In terms of land, Noposion currently possesses 35,000 mu (a mu is equal to 0.1647 acres) of land resources, and the annual production area will reach about 20,000 mu in 2024. The Company is still accelerating the expansion of its blueberry planting base. We expect that by 2026, the Company’s blueberry production area will rapidly increase to 50,000 mu. We believe that the Company is likely to rely on its considerable scale of high-quality land resources in Yunnan to quickly form a blueberry base scale advantage. In terms of technology, it is vigorously promoting the proportion of blueberry patented varieties and the application of early-maturing technology, which would increase the sales price of products while seizing the year-end blank market and diluting costs. In terms of sales, Noposion is proactively expanding the integrated production and marketing, establishing and improving the brand matrix, expanding the front warehouse mode, and cooperating directly with the terminal sales network, which is likely to achieve cost reduction, price increase and gross profit improvement. In addition, as a leading enterprise in the agrochemical preparation industry, Noposion continues to maintain a leading position in the agrochemical preparation business, and enables the specialty fresh consumer business in terms of capital, technology and talent, helping the Company to accelerate the development of the blueberry business.

Potential risks:

Unexpected delays in land expansion and plantation construction; significant fluctuations in the prices of agrochemical preparations or blueberries; risks associated with oversupply in the domestic blueberry market; sales channel development and promotion falling short of expectations; risks related to extreme natural disasters; geopolitical conflicts leading to the blockade of relevant technologies.

Investment strategy:

Noposion is proactively expanding its specialty fresh consumer business to create a second growth curve. With the rapid increase in the production area of its core single-product blueberries grown in substrate, the Company’s blueberry production and sales may achieve rapid growth. Taking into account the Company’s first-mover advantages in Yunnan orchard resources, patented varieties and application of early-maturing technology, and national sales channel construction, we expect Noposion’s specialty fresh consumer business to become the major contributor of the Company’s earnings in the next three years. We forecast the Company’s 2023E/24E/25E net profit to be Rmb0.42bn/0.73bn/1.03bn, respectively, corresponding to the EPS forecast of Rmb0.42/0.73/1.04. Considering the high growth expectation of the　Company’s specialty fresh consumer business and its leading industry position of agrochemical preparation business, coupled with the valuation level of 16x 2024E PE on average of comparable listed companies including Jiangsu Provincial Agri (601952.SH) and Heilongjiang Agriculture (600598.SH) in agricultural products cultivation field, as well as Yangnong Chemical (600486.SH) and Rainbow Chemical (301035.SZ) in agrochemical preparation field, based on our forecast for Jiangsu Provincial Agri and Choice consensus estimates for other comparable peers, and combined with the absolute valuation, we assign 16x 2024E PE to derive a target market value of Rmb12.2bn, corresponding to a target price of Rmb12. We initiate coverage with a “BUY” rating.