Zhongda Seed Industry Faces a Major Test at the Beijing Stock Exchange Listing: Net Profit Was Previously Reduced by Over a Quarter Due to Retroactive Adjustments, and Accounting Estimate Deviations Question the Quality

Recent review meetings at the Beijing Stock Exchange (BSE) have maintained a high frequency.

This week (March 9-13), a total of five companies, including Xiangyang Zhengda Seed Industry Co., Ltd. (hereinafter “Zhengda Seed”) and Guangzhou Kelei Ridi Medical Equipment Co., Ltd., held meetings, with an average of one company advancing through the listing review each day.

Among them, Zhengda Seed has attracted significant attention.

As a corn seed company, Zhengda Seed is a rare agricultural project among BSE-listed companies. Its top five customers include individual farmers, and its performance over the past three years has not been particularly outstanding.

In 2025, Zhengda Seed’s revenue was 361 million yuan, down 5.12% year-over-year; meanwhile, net profit attributable to the parent increased by 11.85% to 91 million yuan.

Behind this set of “profit growth without revenue growth” data, Zhengda Seed’s high dependence on “estimates” reveals its fragile financial position.

Last year, Zhengda Seed had to revise its 2025 first-half net profit downward by over a quarter due to inaccurate estimates of cross-period returns, using a retrospective restatement method.

With such a heavily estimate-dependent and volatile performance report, whether Zhengda Seed can withstand the strict scrutiny of the listing committee remains uncertain.

Over 25% reduction in net profit

Zhengda Seed’s main advantageous products include Zhengda 719, Zhengda 808, and other hybrid corn seeds, covering the four major corn-producing regions: Eastern North China, Huang-Huai-Hai, Southwest, and Northwest.

In the first half of 2025, seed sales generated 84 million yuan, accounting for 98.44% of total revenue.

Behind this nearly 100% revenue share, Zhengda Seed primarily sells seeds through distributors across various regions.

Under this model, Zhengda Seed generally adopts a “payment before delivery” settlement policy. That is, receiving payment from distributors first, then arranging shipments, and recognizing sales revenue at the point of actual product delivery and transfer of control.

On the surface, Zhengda Seed appears to have strong bargaining power over downstream distributors, but the return policies agreed upon are like a ticking time bomb that could wipe out revenue at any moment.

According to Zhengda Seed, the sales practice in the seed industry allows distributors to return unopened, undamaged seeds within a specified period after the sales season, based on return policies and agreements, provided the packaging is intact and free from mold or deterioration.

This means that if a large volume of returns occurs in the future, it could challenge the reliability of Zhengda Seed’s past performance.

Currently, Zhengda Seed estimates the current year’s sales returns based on historical return rates and makes provisions accordingly, offsetting revenue and costs.

In fact, due to the unique operational characteristics of the seed industry, such estimates are highly prone to deviations.

The main operating period for corn seeds is from October of the current year to September of the next year, while the industry’s typical return season is from June to August, creating a clear mismatch with the fiscal year. Coupled with uncontrollable factors like weather and pests, actual return rates are often difficult to predict accurately.

Shenfeng has noted that Zhengda Seed once significantly reduced its 2025 first-half performance due to estimation errors.

It was disclosed that when Zhengda Seed prepared its semi-annual report in August 2025, some distributors had not yet completed returns, so the company estimated return volumes based on available information at that time. However, subsequent actual counts revealed that the real return volume was significantly higher than the estimate.

As a result, Zhengda Seed had to use a retrospective restatement to significantly correct its financial statements for January to June 2025.

Specifically, 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 decline of 25.51%.

Although Zhengda Seed emphasizes that this discrepancy was due to “differences in accounting judgment” and not financial fraud, this financial fragility caused by cross-period return mechanisms has been exposed.

As Zhengda Seed approaches the final step of listing at the BSE, such a high proportion of profit restatements casts a shadow over its performance quality. The “dependence on weather” characteristic of agriculture, combined with the business practice of cross-period returns, makes its financial results prone to fluctuations.

Ensuring the reliability of accounting estimates has become an unavoidable issue in Zhengda Seed’s path to going public.

Profit growth without revenue growth

Looking back at Zhengda Seed’s performance over the past three years, it appears to be a saga of struggles amid cost pressures and market challenges.

In 2023, due to factors such as tight upstream seed production land supply, production costs surged, directly squeezing profit margins, with net profit attributable to the parent decreasing by 6.61% year-over-year. In 2024, Zhengda Seed proactively shrank its breeding and seed production services, coupled with downward pressure on corn spot prices, leading to further declines in both revenue and profit.

By 2025, as seed production costs eased and expansion in core regions like North China and Huang-Huai-Hai progressed, Zhengda Seed’s performance showed a divergence: revenue slightly declined by 5.12% to 361 million yuan, but net profit attributable to the parent rose by 11.85% to 91 million yuan.

This was mainly due to Zhengda Seed actively adjusting its accounting estimate strategies.

On the revenue side, based on actual return data from the previous sales season, Zhengda Seed adopted a cautious approach by increasing its estimated return rate for the current period, objectively lowering recognized revenue; on the profit side, reduced seed production costs and increased sales of core products expanded profit margins.

However, this estimate-based performance still carries uncertainties. If actual returns in the future exceed expectations, already recognized profits could be reversed.

This potential fundamental volatility has attracted regulatory attention. The BSE, in its inquiry letter, asked Zhengda Seed to clarify whether there is a risk of continued decline in performance and to provide sufficient risk warnings.

In response, Zhengda Seed provided a relatively optimistic outlook: with overall reduction in seed production area, it expects stable corn seed prices and steady sales and production rates in the new season, which could help stabilize gross margins and reduce the likelihood of further performance decline.

Nevertheless, Zhengda Seed also acknowledged that if market conditions and competitive landscape deteriorate unfavorably and the company fails to respond effectively, operating revenue and net profit could decline by over 50% or even turn into losses in extreme cases.

In fact, performance uncertainty has always been a tough question for seed companies seeking to list.

In 2023, Kangnong Seed Industry, also in the seed sector, faced a suspension of review during its initial attempt to go public at the BSE. One of the core concerns of regulators was whether Kangnong Seed’s growth was sustainable amid its expansion into more competitive regional markets, given its current operational capacity.

Whether it is the financial fragility caused by cross-period return mechanisms or the risk of performance halts in extreme scenarios, Zhengda Seed must confront these challenges. How to demonstrate to regulators and investors the certainty and resilience of its performance in this “weather-dependent” industry will be key to its successful entry into the capital market.

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