The company expects 2021 net profit to be 70% lower than our expected profit warning issued by Fengxiang shares: it is estimated that the year-on-year operating income in 2021 is about + 13.2% to 4.417 billion yuan, and the net profit is about-80% income 70% to 0.36 billion yuan (179 million yuan in 2020 net profit, which the company said will be adjusted and restated according to accounting standards), corresponding to 2H21 net profit of about 0.83 billion yuan. The performance was lower than we expected, mainly due to the poor profit of the company due to the rising cost of feed raw materials and low poultry prices, as well as the increase in expenses related to the new retail business.
Pay attention to the main points
The profit of the poultry breeding industry in 2021 is poor, and the overall performance of poultry prices this year is expected to be weak: the prosperity of the poultry breeding industry will decline in 2021. According to the Poultry Industry Association, the average price of chicken production and sales in 2021 is-1.4% compared with the same period last year. The average price of corn and soybean meal, the main feed raw materials, is + 27.2% and + 19.9% year on year, which puts pressure on the breeding profits of the industry as a whole. Looking forward, we judge that the trend of poultry price in 2022 is still weak, one of which is that the supply side is abundant, considering that the introduction amount of ancestral chicken seedlings of white feather broilers is relatively high, and the intermediate stock column is rising. According to the Poultry Industry Association, the average stock column of parents' generation chickens in January and February is + 17.5% compared with the same period last year. We judge that this will increase the number of commodity generation this year. Second, the demand side is weak, the recent COVID-19 epidemic repeatedly disturbed chicken consumption in catering and other channels to a certain extent, and short-term low pig prices also make chicken alternative consumption limited.
The company will reduce the cost increment, and there may be opportunities for improvement in the aquaculture business this year: we believe that there are opportunities for optimization in the company's operation, and the core is to upgrade the culture model to cage culture. Compared with the land culture model, we think that this will help to increase the culture density and reduce the unit culture cost. Then improve the profit of single feather culture. At the same time, the company's aquaculture capacity continues to expand, such as the IPO investment project is progressing smoothly, we expect the company to achieve the three-year development goal of "autotrophic scale of 180 million to 200 million" more quickly, so as to support the overall profit improvement of the aquaculture business.
Taking a long-term view, the deep-processed chicken products business reflects the growth potential: in recent years, the company tilts resources to develop downstream deep-processing business, corresponding to product building, brand marketing has more innovation. In terms of products, based on packaged chicken deli and condiments, the company has recently launched new products such as chicken breast protein bars, daily excellent children's chicken nuggets, etc., covering the needs of many consumers; on the brand, relying on celebrity endorsements, new media and convenience store marketing, Youshape won the double 11 chicken breast meat championship in 2021, and sales in Dingdong (Cayman) Limited were + 256% in 2021 compared with the same period last year. On the whole, we believe that deep processing business will help the company to expand its long-term development space and stabilize cyclical fluctuations in performance to a certain extent.
Profit forecast and valuation
The current share price corresponds to 2022 Universe, 23, 18, 6, P, and E, respectively. Considering the poor profit of the poultry breeding industry, we lowered the company's 2021-22 return net profit forecast of 61.6% to 0.47 billion yuan, and introduced a forecast of 200 million yuan in 2023. Taking into account the downward adjustment in profit forecast and the growth potential of the company's deep processing business, the target price was lowered by 40% to HK $1.2, corresponding to a 12% upward space for 2022max in 23.
Maintain a neutral rating.
Risk
Fluctuation of poultry price; rising feed cost; epidemic risk; intensified market competition; food safety risk.