Incident reviews

Incident: According to UCN, the Chilean government is enacting a bill to restrict the expansion of salmon farms for environmental protection purposes, prohibits the development of salmon farming in marine reserves, and may not issue more new licenses in the future.

The issuance of farming licenses has been restricted, and further tightening is expected on the supply side. Looking at the supply side, Norway and Chile account for nearly 80% of the world's total salmon production, according to the Meiwei aquaculture manual. Norway has restricted the issuance of licences since 1982, and currently producers can only obtain licences through auctions. However, the Chilean government's restrictions on issuing new farming licenses will cause the growth rate of global salmon supply to slow further, further highlighting the value of salmon licenses. At the same time, the high degree of industrialization of the salmon farming industry and the high difficulty requirements of intelligent farming methods pose a great challenge to the capital of enterprises that want to enter the business. Therefore, it is expected that it will be difficult for the global supply of salmon to expand drastically in a short period of time, and salmon prices are expected to maintain an upward trend in the medium to long term.

Potential demand for salmon remains strong, and prices still have room to rise. Looking at the demand side, as consumer consumption levels continue to rise, salmon, which has a different advantage from mainstream protein sources and where the food side is the main consumption scenario, is expected to usher in an explosion in demand. According to Mowi's annual report, global sales of salmon increased 99% (CAGR of 8%) in the decade 2011-2020, and global sales increased 75% over the same period (CAGR of 6%). Since 2021, the consumer market demand for salmon has gradually picked up from the pandemic, and global salmon market prices have rebounded. According to the NASDAQ SalmonIndex, as of the second week of May, the Nasdaq salmon index was 132.15 NOK/kg, up 60% since the beginning of the year. Pressure on the upstream supply side is compounded by a strong recovery in demand, and fish prices are expected to continue to be strong in 2022.

The scarcity of core assets has been confirmed once again, and there is strong certainty about high growth. As the only salmon farming A share, Jiawo Foods acquired Chilean salmon company A.S., obtained 96 farming licenses in 2019, and has sufficient production capacity. Scarce licenses, leading technology, and refined management models have created the company's strong strength. At the same time, the company clearly proposed a strategic policy of “global resources+Chinese consumption”, actively increasing the development and sale of 3R nutritional products that meet the needs of a new generation of consumers, and further extending the industrial chain.

Investment advice

The supply and demand for salmon continues to be strong, and fish prices are expected to remain high throughout the year. It is estimated that in 2022-2024, the company's net profit attributable to the mother will be 216/371/645 million yuan respectively, corresponding to EPS 1.24/2.13/3.71 yuan. Considering that salmon prices are expected to continue to rise and costs such as financial expenses and feed ingredients will gradually decline, we expect the company's performance elasticity to continue to be released to maintain the “recommended” rating.

Risk warning

Repeated outbreaks; salmon disease risk; food safety risk.