Event: On the evening of 14 May, the Company announced that its controlling shareholder (Xindaxin) planned to acquire Origin Agritech (NASDAQ:SEED). We cover the specific situations of the Company and Origin Agritech, and made an R&D and valuation comparison with the US-based Monsanto. Our comments are as follows: Comments: Forecast-beating acquisition of one of top 10 Chinese seed providers. Origin Agritech has been steadily ranking among top 10 in the sector, with hybrid maize seed operation capability and commercialized breeding system building being its most notable features and value, in which, its genetically modified (GM) crop R&D system building leads national commercial establishments. In 2013, it logged ~Rmb482mn in turnover, and ~Rmb382mn in maize seed sales (representing 80% of its turnover). Core value of the acquisition: Origin Agritech’s R&D system is expected to greatly complement with that of the Company. Over the past three years, the Company’s annual scientific research expenditure has represented ~8% of its turnover. It boasts the transgenic breeding techniques and most mature achievements. At present, it has qualifications for commercialized promotion of phytase transgenic maize. Meanwhile, it has completed field test for its glyphosate resistant transgenic maize seeds, and is waiting for product safety certificate to be issued. Initial R&D input determines earnings to be accrued by GM products in future. Since its listing, Origin Agritech has invested Rmb250mn-plus in R&D, and it is forecast to benefit first and fastest after policies for commercialization of GM products. Monsanto’s seed business contributions to its earnings are recognized by the market, and the business was applied more than 30x prospective 2014E PE by the market at the beginning of its development. Compared with Monsanto, the Company is operating at the early period of growth seen in Monsanto’s development process. With huge growth potential in future, the Company’s presence featuring in organic growth and inorganic expansion will boost it to become a global seed giant at an accelerated pace, while acquisition of Origin Agritech marks only first step towards its inorganic growth. Conventional hybrid maize seed business of Origin Agritech is expected to accrue the Company’s net profit. Origin Agritech has a total of 57 hybrid maize seed products, including Liyu 16, Liyu 35, Lin’ao 1, and other core products. Over thepast two years, Liyu 37 was officially launched. We estimate that as the sector’s business climate picks up, earnings contribution from Origin Agritech’s conventional breeding segment is expected to recover YoY. Based on ~10% net margin that domestic seed leaders usually earn, Rmb30-40mn is a fair level of net profit p.a. for it. The rapid advancement of its efforts in M&A at home and overseas is expected to further improve the Company’s valuation potential. Since the Company’s completion of acquisition of minority interests in 2013, it has further improved its corporate governance, and interests of its shareholders and executives are highly consistent. As for its businesses, high-end products (hybrid rice/maize seeds have seen increase in both sales volume and selling price. LongliangyouHuazhan (demonstration field yield: more than 1,000 kg/mu), Longliangyou 534 and other new products are enough to help the Company to pose (i) a CAGR of ~30% and (ii) organic growth in net profit over the next five years. Potential risks: (i) Promotion of new seed products, (ii) slower-than-expected spin-off of derivative industries, and (iii) policies for genetically modified seeds. Investment advice: we are upbeat about the Company’s sustainable growth value in the long term, and reiterate “BUY” rating with its target price at Rmb35 per share. In 2014E, core products represented by Y Liangyou and Longping 206 are expected to register a steady growth, and new products represented by Longliangyou/Shenliangyou/Jingliangyou/Longping 702/Huawan series will see their growth surge, so the Company is projected to post rapid organic growth in earnings. Loss-making subsidiaries are expected to be spun off within 2014E. If its controlling shareholder succeeds in acquiring Origin Agritech, a string of achievements in GM sees of the latter’s will further beef up the Company’s R&D strength, enrich its product line-up, and step up its maize seed business. Also, the acquisition will tamp its position as a leading seed provider, paving the way for its overseas expansion, and re-rating its valuation. As for its long-term development potential, it is expected to continue inorganic expansion worldwide by virtue of its leading hybrid rice techniques, which will accrue its earnings and improve its valuation. We reiterate its 2014/15/16E EPS of Rmb0.95/1.26/1.85 and “BUY” rating with target price at Rmb35 per share.

Investment Highlights The Company is expected to become a platform for integration of animal vaccine sector. With the consistent improvement in industry structure, SMEs without financial strength and R&D ability will be gradually eliminated. Over the next decade, China’s animal vaccine sector is expected to form the market pattern like the oligopoly market in the US. In our view, as one of the leaders in the sector, the Company will be dedicated to animal vaccine sector after spinning off real estate business. Additionally, its business cooperation with France-based CEVA has seen a good start, and it is expected to move in two aspects in future by virtue of its financial strength: (i) continue to expand and upgrade its production lines, diversify industry technology resources, and increase products in the pipeline; and (ii) launch more business cooperation at equity level, in an effort to develop into a platform for sectoral integration, and solidify its market leadership. Market-based vaccine business will continue to grow, and FMD vaccines will be the Company’s major earnings growth driver in 2014E. The Company’s market-based vaccines boast outstanding quality and robust demand from large-scale farms. It still has Rmb200mn-plus market potential in medium and large-scale breeding pig and live pig farms. As its cattle and sheep FMD trivalent vaccines see low base of revenue and a small number of competitors, direct marketing business is expected to keep contributing to it growth, which coupled with expectations for growth in swine FMD vaccines, is projected to boost its market-based vaccine business to grow by 40%-plus. Its tender-based vaccines cover three major epidemics-FMD, PRRS, and swine fever, in which, FMD vaccines are of the largest scale with most upbeat growth prospects. In our view, the growth in tender-based vaccines will be reflected in two aspects: (i) bid-winning scale is expected to keep increasing; and (ii) unit tender price is expected to pick up. It is forecast to register Rmb394mn in tender-based vaccine revenue in 2014E, up by ~24% YoY. New drivers for growth: brucellosis vaccine, porcine circovirus vaccine, and other new products are expected to be launched in 2015E: The Company is expected to launch new brucellosis vaccine at end-2014E or beginning-2015E, whose unit tender price, based on its forecast and market expectation, is expected to increase to Rmb2/dosage (the Company’s tendering volume stood at ~100mn dosages in 2013). Moreover, among vaccines for non-compulsory inoculation, porcine circovirus vaccine has become a product with relatively huge demand with ~Rmb1.5bn in market size. If the Company takes advantage of technological cooperation, porcine circovirus vaccine may be launched at beginning-2015E at the soonest, and is expected to log Rmb150mn in revenue over the 2-3 years thereafter. Additionally, as a leader in the sector, it has the ability and is likely to further develop and expand its poultry vaccine business. In our view, if it takes advantages of inorganic growth or technological cooperation, it is expected to bridge the gap in poultry vaccines in 2015E at the soonest, and register Rmb100mn in revenue within three years thereafter, equivalent to a 5% share in the tender-based vaccine market. Potential risks: (i) Large-scale spread of new/mutated viruses; (ii) failure in new product R&D or cooperation, and (iii) policies. Initiate coverage of the Company with “OVERWEIGHT” rating. Based on detailed analysis of the Company’s products in the pipeline, R&D, production, and other competitive strengths, we are upbeat on its rosy growth prospects and attraction. In our view, relying on its growth in FMD vaccine business over the next two years, it may continue to launch brucellosis vaccine, porcine circovirus vaccine, poultry vaccine, and other new products with high possibility for its earnings to beat expectations. After spinning off real estate business, it has become the purest animal vaccine play among comparables. Animal vaccine business will see a huge potential and rapid growth, and its market-based vaccines are expected to continue grow across cycles, and its share price boasts margin of safety. After gross margin picks up, its 2014-15E net profit growth rate is projected to average at ~45%. We set its target price at Rmb32 per share (implying 2014E PE of 35x, and 2014/15/16E EPS of Rmb0.91/1.32/1.53), and initiate coverage of it with “OVERWEIGHT” rating.