Focus on the meat industry chain, the transformation of prefabricated dishes. Delis industrial system layout from pig slaughtering, meat products deep processing to beef products fine processing, quick-frozen conditioning products processing and so on. The company has established long-term and stable cooperative relations with Haidilao International Holding, Jiannong, Shengnong, Zhengxin Chicken Steak, whole Family, convenience Bee and other large meat production enterprises, well-known chain catering groups and convenience stores. The strategy of accelerating the transformation of "big consumption" will be launched in 2021, with chilled meat and frozen meat as the basic plate, deepening the food business and making efforts to prefabricate the food race track. In 2021, a restricted stock incentive plan was launched to bind the interests of core executives and fully stimulate the enthusiasm of employees to promote the sustained and stable development of the company.

Vigorously develop the food business, prepared vegetables have a broad space for growth.

Prefabricated dishes can effectively solve the pain points of B and C, and the prosperity of the industry is high. Prefabricated dishes can reduce costs and increase efficiency for B-end enterprises, and it is a good solution for the timeliness of takeout and catering chain; at the same time, the "lazy economy", miniaturized family structure and aging population give rise to the C-end demand of prefabricated dishes. According to the scale of catering market, the penetration rate of B-end and the proportion of B-end, it is estimated that the size of Chinese prefabricated food market (B-end) is about 300 billion yuan. According to the development path of B then C in Japan, the proportion of B-end is expected to drop from 80% to 70%. It is estimated that the size of China's prefabricated food market will reach nearly 900 billion yuan in 2026, and the CAGR in 5 years will be about 24% (assuming that the catering market CAGR is 5% in 2021-2026 and the penetration rate of prefabricated vegetables in 2026 is 25%). Industry competition pattern is scattered, integration space is large, upstream agriculture and animal husbandry aquatic enterprises, mid-stream food processing enterprises, downstream retail enterprises are all involved, the key to breakthrough lies in: 1) product research and development capabilities to meet diversified needs; 2) large-scale production advantages and supply chain operation efficiency; 3) control of sales channels, that is, the precipitation of B-end customer resources and the building of C-end brand power.

The company has made efforts to prepare food, which is expected to become a new growth pole. Revenue from prepared vegetables in 2020 was 368 million, an increase of 36.01% over the same period last year, accounting for 11.2%. On the production side, at present, the company's total production capacity of prefabricated vegetables is about 150000 tons, including 50,000 tons of prefabricated vegetables under construction in Shaanxi Base, which is expected to be released in mid-late 2022 with great growth potential. On the channel side, the BC side accounts for 7:3, and in the past three years, it has focused on expanding the B side, setting up a key customer department to focus on catering chain customers, and long-term cultivation of C-end consumers.

The slaughtering industry has a large space for integration, and the company has a significant location advantage.

The concentration of the slaughtering industry is expected to increase, and the slaughtering flexibility is great in the downward period of pig prices. In 2018, the CR3 of China's slaughtering industry was only 4.5%, and the slaughtering proportion of designated pig slaughtering enterprises above scale has been maintained at about 1/3. The highly dispersed industry pattern is mainly caused by the dispersion of upstream and downstream, private slaughter and local protection. With the tightening of environmental protection policy since 2013 and the reform of traditional pig transportation methods after the occurrence of non-plague epidemic, the share of Longtou City is expected to increase rapidly in the future.

At present, it is in the downward channel of pig prices, with an estimated 22-year average price of 16 yuan / KG, a year-on-year decline of about 20%. The slaughtering industry is expected to achieve a rise in volume and profit, with large profit flexibility.

The company's location advantage is significant, and channel resources continue to accumulate. The company's slaughtering business is distributed in Jiaodong Peninsula and Songliao Plain, with sufficient pig resources, which can effectively support the rapid expansion of slaughtering scale. The slaughtering capacity is 3 million head / year in 2021, and the additional production capacity is expected to increase by 2 million head / year after the additional investment project reaches production, and the slaughtering area will be expanded to the northwest region. At the end of the product, it is the first to advocate "deacidification and detoxification at low temperature"

Chilled pork, production and processing technology is in the international leading level. The channel end is rich in customer resources, and has become a supplier of chilled meat products to some schools in Shandong, Shaanxi, Jilin, Beijing and other places.

Profit forecast: relying on the scale basis of slaughtering business and location advantages, the company will accelerate the transformation strategy of "big consumption" after 2021, vigorously develop the deep processing business of meat products, and make efforts in the field of prefabricated vegetables. The prefabricated vegetable track has high growth, scattered competition in the industry and large space for integration. In recent years, the company's income from frozen condiments and beef products has increased significantly. With the release of prefabricated vegetable production in the future, it is expected to grow rapidly. It is estimated that the company's EPS for 21-22-23 will be 0.08gamma 0.12x0.19, corresponding to the closing price on March 11, 2022, and the PE for 22gam23 will be 45.91 times as much as 71.47max, with a "prudent overweight" rating for the first time.

Risk hints: pig price fluctuation risk, pig epidemic risk, prefabricated vegetable market competition risk, food safety risk