Aonong Biology is one of the few companies that have realized the rapid growth of pig production scale in the last cycle, with a compound annual growth rate of 96 per cent (2017-2021) since listing. The company has a strong strategic focus, has maintained continuous investment in pig farming business and actively improved the level of management. After the accumulation of continuous development in recent years, the company's fixed assets production capacity and sow stock scale may continue to show a high growth trend in the later stage, and the entry of additional funds in the later stage will also accelerate the company's future capacity construction. Superimposed with the marginal improvement of the cost side brought about by the improvement of the level of fine management, the company's long-term growth in the future is worth looking forward to.

Capacity may continue to be eliminated in the later stage, and the reversal of pig cycle is expected to be strengthened.

We believe that in the later stage, the stock of fertile sows is expected to continue to be removed, and the pig cycle reversal is expected to be strengthened. Specifically: 1. The breeding industry has lost money deeply for more than 7 months, and the maximum loss has also greatly exceeded the previous cycle. At present, the leading enterprises in the industry have suffered losses for 2-3 consecutive quarters, and the loss period is no less than the worst in history. In 2021, the total loss of the main listed breeding enterprises reached 41.8 billion yuan, and the asset-liability ratio has been at a historically high level. In the later period, as pig prices remain in the doldrums, the capital and debt repayment pressure of breeding enterprises is expected to further expand, and production capacity may shrink; 2, from the trend of breeding sows, the pressure on the supply side of the industry in the first half of 2022 is still large, superimposed by the impact of low consumption and rising raw material costs, the range of losses in the industry may continue to expand; 3, from the price of piglets and reserve sows, the current industry replenishment is not active. On the whole, we believe that the current trend of pig farming plate is more certain, with the further expansion of the industry capacity, pig cycle reversal is expected to continue to strengthen.

Proud Nong creature: Dragon Teng all over the world, braving the wind and waves

Since the listing of the company, the annual compound growth of pig production scale has reached 96% (2017-2021), and the company has a strong strategic focus, continues to focus on the development of breeding business, and the long-term growth in the future is still worth looking forward to. Specifically: 1. The company continued to invest in the pig farming sector during the downward period of the cycle. In the first three quarters of 2021, capital expenditure reached 2.27 billion yuan, an increase of 5.6% over the same period last year. It is one of the few enterprises in the industry to maintain positive growth. Under the continuous large-scale investment, the company already has a high production capacity base at the level of fixed assets. As of March 31, 2021, the company has built a total of 118 pig farms and leased pig farms, and 51 pig farms have been built, and in the later stage, it plans to raise funds to further expand production capacity; 2. The management team of the company is stable, and the size of employees also shows a trend of continuous growth. At present, the company has about 12000 employees, an increase of about 30 per cent over the end of 2020. The perfect incentive mechanism of the superimposed company ensures the certainty of the long-term growth of the company's scale in the future. 3, the company continues to invest in breeding, and has formed a perfect breeding system, which can not only ensure its own sow supply, but also sell to the outside world. By the end of 2021, the stock size of sows has exceeded 300000, laying the foundation for future growth. Overall, the company is expected to produce 600 and 8 million pigs in 2022 and 2023, and the proportion of fattening pigs may continue to increase, which is expected to reach 50% and 75% respectively.

In addition, with the continuous improvement of the level of fine management of the company, the cost side of the company is expected to show marginal improvement. In view of the rising costs caused by the rapid expansion in the early stage, the company has put forward a sixteen-character development strategy of "effective operation, fine management, strengthening internal control and result orientation". Specifically, in terms of production, the company focuses more on the production capacity of the layout, focusing on supporting production in advantageous areas to improve efficiency; 2, in terms of management, the company takes people as the core, strengthen the construction of team style and improve the efficiency of per capita farming. In 2020, the average labor cost of live pigs in the company reached 248 yuan, which has great room for improvement. In addition, with the improvement of the company's capacity utilization, the per capita pig dilution expense of the company is expected to decline, and the reduction of piglet cost is gradually transmitted to the fattening end after the improvement of sow population structure, and the company's future cost is expected to show a downward trend. It is estimated that the complete cost of fattening and breeding in 2022 is expected to drop to 16 yuan / kg.

Risk hint

1, the rise in pig prices is not up to expectations; 2, the company's scale growth and cost improvement are not up to expectations; 3, the company's cash flow is under great pressure.