Yuan Long Ping High-Tech Agriculture SHE:000998 (Long Ping High-Tech) has been upgraded to a strong buy with a 2012 price target of 50RMB issued today by Shayne Heffernan.

Yuan Long Ping High-Tech Agriculture SHE:000998 (Long Ping High-Tech), one of China’s major players in the agriculture sector, will invest in a number of processing facilities for corn and rice seeds and pepper products this year, said the company’s Chief Executive Officer Liu Shi.

The total investment, which was not disclosed, will further consolidate the company’s leading position in the industry, Liu said. The CEO did not say when the facilities will be completed.

Yuan Longping High-tech Agriculture Co.,Ltd. is a China-based company primarily engaged in the research, production and sale of agricultural products. The Company’s main products include crop seeds, such as hybrid rice, corns, wheat, vegetables and fruits, among others; pepper and pepper products; rice, agricultural chemicals, cotton, as well as rapes.

It distributes its products principally in domestic markets. As of December 31, 2010, the Company had 10 subsidiaries and one associate, which involved in research and development of crop seeds and agrochemical products, the development of agricultural technologies, investment business, as well as the sale of grains and oil products, among others.

Experts said the move represents the ambition and optimism of China’s large domestic seed companies, which have been encouraged by government policies released in April that aim to accelerate industry development

The corn seed processing facility is located in Zhangye in northwestern China’s Gansu province. Investment in the first phase of the project stands at 80 million yuan ($12 million). Total investment in all four phases of the corn processing plant will be 200 million yuan, Liu said.

The company is also developing facilities dedicated to drying rice seeds – a process that currently poses a challenge to the entire industry.

The company intends to raise its red pepper drying capacity next year to 10,000 tons annually from 3,000 tons at present.

During the first half of this year, the company’s income surged by 26.6 percent year-on-year to 753 million yuan. Profit jumped by a staggering 171 percent compared with the same period last year to 105 million yuan, according to a statement from the company.

The rapid expansion was partly prompted by new government policies for the industry, Liu said.

“The new government policies created a favorable environment for the domestic seed industry and will enable us to achieve greater development in the next few years,” he added.

The seed industry in China is highly fragmented with more than 8,000 small and medium-sized domestic companies operating in the market. In April, the State Council issued new industry guidelines promoting industrial consolidation and development.

In accordance with the new guidelines, measures by the Ministry of Agriculture may soon take effect. These measures will increase the entry barriers for domestic seed companies and are aimed at encouraging existing players in the industry to consolidate, according to domestic media.

Since the announcement of the policy, the total value of mergers and acquisitions in the industry has amounted to 553 million yuan, three times that of last year’s figure, according to industrial data.

But Long Ping High-Tech is not eager to buy smaller companies just yet. “Currently, our focus is on expanding capacity and strengthening operations. Therefore, we are not seeking acquisitions of smaller companies,” Liu said.

Even without acquiring other companies, “being one of the largest domestic players in the industry, Long Ping High-Tech has technical and political advantages. Government support for the industry will definitely be conducive to the company’s future expansion plans”, said Ma Wenfeng, a senior analyst at Beijing Orient Agribusiness Consultant Ltd, a major agricultural consulting company.

“Encouraging the development of leading domestic seed companies will help advance the agricultural sector and secure China’s food supply,” he said.

“The country cannot afford to pay insufficient attention to the seed industry,” Ma added.

Jin Yi, deputy general manager of Winall Hi-tech Seed Co Ltd, China’s third-largest producer of rice seeds by capacity, shared the same experience with Liu. Jin’s company is based in Hefei, the capital city of eastern China’s Anhui province.

“With the help of government policy, we have conducted a slew of acquisitions this year,” Jin said.