Zhengda Seed Industry Faces Major Review at Beijing Stock Exchange: Net Profit Previously Retroactively Reduced by Over a Quarter, Accounting Estimate Deviations Question Credibility

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Recently, the approval meetings at the Beijing Stock Exchange have been maintaining a rather high-frequency pace.

This week (March 9-13), a total of five companies, including Xiangyang Zhengda Seed Industry Co., Ltd. (“Zhengda Seed Industry”) and Guangzhou Colliradi Medical Equipment Co., Ltd., will attend the meetings, with an average of one company undergoing listing committee review each day.

Among them, Zhengda Seed Industry has attracted significant attention.

As a corn seed company, Zhengda Seed Industry is a rare agricultural project among listings on the Beijing Stock Exchange. Its top five customers include individual households, and its performance over the past three years has not been outstanding.

In 2025, Zhengda Seed Industry’s revenue was 361 million yuan, a year-on-year drop of 5.12%; however, net profit attributable to the parent increased, rising 11.85% to 91 million yuan.

Behind this “increased profit without increased revenue” set of data, Zhengda Seed Industry’s high reliance on “estimation” reveals a financial vulnerability.

Last year, Zhengda Seed Industry had to adopt retrospective restatement due to inaccurate estimates of cross-period returns, adjusting away more than a quarter of its net profit for the first half of 2025 at one stroke.

With a report card that heavily relies on “estimation” and is riddled with volatility, whether Zhengda Seed Industry can withstand the rigorous scrutiny of the listing committee remains uncertain.

Reduced Over 1/4 of Net Profit

Zhengda Seed Industry’s main products include hybrid corn seeds like Zhengda 719 and Zhengda 808, covering the four major corn production areas: Northeast China, Huang-Huai-Hai, Southwest, and Northwest.

In the first half of 2025, its seed business generated 84 million yuan in revenue, accounting for 98.44%.

Behind this nearly 100% revenue proportion, Zhengda Seed Industry mainly sells seeds to various regions through distributors.

Under this model, Zhengda Seed Industry generally adopts a “pay-first-then-deliver” settlement policy, arranging shipments after receiving distributors' payments, and confirming sales revenue at the point of actual product delivery and transfer of control.

On the surface, Zhengda Seed Industry has considerable bargaining power over downstream distributors, but the return clauses agreed upon by both parties are like a ticking time bomb that can erase revenue at any moment.

According to Zhengda Seed Industry, it is customary in the seed industry that after each variety’s sales season ends, distributors can return seeds in unopened, undamaged original packaging, without mildew or deterioration, within the agreed period per the return policy and agreements.

This means that if the scale of returns is large in a certain future period, the reliability of Zhengda Seed Industry's past performance could be challenged.

Currently, Zhengda Seed Industry estimates the percentage of returns for the current year based on actual return rates in previous years, and provides for sales returns to offset the corresponding revenue and costs.

In fact, due to the special business characteristics of the seed industry, such “estimates” are prone to deviation.

The main business period for corn seeds is from October of the current year to September of the following year, while the usual concentrated return season in the industry is June to August each year, which obviously does not align with the accounting year. Coupled with agriculture’s sensitivity to uncontrollable factors such as climate and pests, actual return rates are often difficult to predict accurately.

Xin Feng noted that Zhengda Seed Industry once had large adjustments to its results in the first half of 2025 due to deviations in accounting estimates.

According to disclosures, when compiling its semiannual report in August 2025, some distributors had not yet completed returns, so Zhengda Seed Industry estimated the return volume based on information available at the time. However, later inventory checks found that the actual returns were significantly higher than estimated.

As a result, Zhengda Seed Industry had to adopt retrospective restatement to make substantial corrections to its financial statements from January to June 2025.

Of these, operating income was retrospectively reduced by 7.7472 million yuan, a decrease of 7.96%; net profit was reduced by 4.0887 million yuan, a shrinkage of up to 25.51%.

Although Zhengda Seed Industry emphasized that this discrepancy was due to “differences in accounting judgment,” and there was no financial fraud, this financial vulnerability, caused by the cross-period return mechanism, is already evident.

At the critical juncture of sprinting to the Beijing Stock Exchange, exposing such a high proportion of profit revision undoubtedly casts a shadow over Zhengda Seed Industry’s true performance. The characteristic of agriculture “relying on the heavens for food,” compounded by the business practice of cross-period returns, makes its financial performance easy to fluctuate.

How to ensure the reliability of accounting estimates has become an unavoidable issue in Zhengda Seed Industry’s road to listing.

Increased Profit Without Increased Revenue

Reviewing Zhengda Seed Industry’s performance trajectory over the past three years, it is clearly a “frustration story” of a difficult struggle between costs and the market.

In 2023, due to tight supply of seed production land upstream and other factors, seed production costs rose sharply, squeezing profit margins and causing net profit attributable to the parent to fall 6.61% year-on-year; in 2024, Zhengda Seed Industry actively scaled back outsourced seed production and seed technical services, combined with downward pressure on spot corn prices, leading to a further decline in both revenue and profits.

By 2025, with seed production costs falling and expansion in the two key producing regions of Northeast China and Huang-Huai-Hai, Zhengda Seed Industry’s performance showed a divergence: “increased profit without increased revenue.” Annual revenue reached 361 million yuan, down 5.12% year-on-year; but net profit attributable to the parent reached 91 million yuan, up 11.85% year-on-year.

This time, it was the result of Zhengda Seed Industry proactively adjusting its accounting estimation strategy.

On the revenue side, Zhengda Seed Industry raised its estimated post-period return rate out of caution, based on actual returns in the previous sales season, objectively depressing the scale of revenue confirmed in the current period; on the profit side, the overall decline in seed production costs and ramp up of core products released more profit.

However, this performance based on “estimates” still faces uncertainties. If future returns exceed expectations, already confirmed profits may still be offset.

This potential volatility in fundamentals has drawn regulatory attention. The Beijing Stock Exchange, in its inquiry letter, asked Zhengda Seed Industry to explain whether there is a risk of continued performance decline and to provide sufficient risk warning.

In response, Zhengda Seed Industry gave relatively optimistic expectations: as the overall acreage for seed production shrinks, prices for corn seed are expected to remain stable, sales proportion will not fall, and gross margin should stabilize, making the probability of further sharp performance declines low.

However, Zhengda Seed Industry also admitted that if the market and competitive landscape turn unfavorably and are not effectively addressed, in extreme cases, operating income and net profit could face declines of over 50%, or even losses.

In fact, uncertainty in performance has always been a difficult problem for seed companies when pushing for a listing.

In 2023, Kangnong Seed Industry, also in the seed track, had its IPO process on the Beijing Stock Exchange postponed. At the time, one of the core focuses of regulators was whether Kangnong Seed Industry, on the basis of its existing operating capability, could maintain sustainable growth while expanding to more competitive regional markets.

Whether it is the financial vulnerability brought by the cross-period return mechanism or the crisis of performance halving in extreme situations, these are the hard battles Zhengda Seed Industry must face head on. How it can demonstrate performance certainty and resilience to risk to regulators and investors—in an industry that “relies on the heavens for food”—may be key to whether it can successfully enter the capital market.

Risk Warning and DisclaimerThe market has risks; investment requires caution. This article does not constitute personal investment advice, nor does it take into account specific investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions herein fit their own situations. Investments based on this article are at your own risk. ```