The advantage of cash is obvious, and the company is expected to accelerate its expansion and fully grasp the upward period after the reversal of pig prices. The Hong Kong supply business has geographical advantages, and the per capita profit is expected to continue to be better than that of the industry. For the first time, the coverage gives a "highly recommended-A" rating.

Mainly engaged in pig farming, the largest supplier of live pigs to Hong Kong. In 2021, the company produced 368000 live pigs, of which 199700 live pigs were supplied to Hong Kong, accounting for about 26% of the mainland's supply to Hong Kong. It is the largest supplier of live pigs from the mainland to Hong Kong. The company's pig farms are located in Heyuan City, Guangdong Province.

It can accelerate the degeneration of sows, and the price of pigs can be reversed. At present, pig price is on the eve of the start of the new cycle. From the four dimensions of sow production capacity, pig price absolute value, breeding profit and pig feed sales, the reversal of 22H2 pig price is expected. Considering that the sow price is still at the bottom and the cash flow of the industry is seriously damaged, we judge that the removal of sow production capacity has not yet bottomed out, and the cyclical elasticity is expected.

Plenty of cash + location advantage, quality and expansion can be expected. At present, the company is one of the few listed pig enterprises with low debt ratio and sufficient cash on paper, and its scale expansion is expected to accelerate. Combined with the company's pigsty, sow, personnel and financial situation, we estimate that the annual output of the company in 2022-23-24 is expected to reach 601,200,000. Benefiting from higher pig prices in Hong Kong and the implementation of high quality and high prices, the company continues to increase the proportion of its own production and supply to Hong Kong, and the company's breeding profit center far exceeds that of the industry, with a gross profit margin of 41% in 2021. Considering that the mainland supply market is already recovering, and the company's geographical advantages and historical high completion are expected to lead to a continuous increase in its market share of Hong Kong supply, the company's proportion of pig sales to Hong Kong is expected to maintain a high level of 50%, thus supporting its per capita profit level to continue to outperform the industry. In the medium to long term, the Greater Bay area is still in a period of economic take-off, the pig price advantage of Guangdong and other places is expected to expand, and the profit level of domestic sales may be on a par with that of Hong Kong supply.

We will improve the layout of the industrial chain and build 1 million slaughtering capacity. The company's slaughtering capacity of 1 million heads will be put into production in the second half of the year. Under the policy background of the transformation from "transporting pigs" to "transporting meat", brand and location advantages will help the company to carry out slaughtering business.

For the first time, it gives a "highly recommended-A" investment rating. The advantage of cash is obvious, and the company is expected to accelerate its expansion and fully grasp the upward period after the reversal of pig prices. At the same time, the company's pig supply business has geographical advantages, and the per capita profit is expected to be better than that of the industry. It is estimated that the net profit of returning to the mother in 2022-23-24 will be 70 million yuan / 886 million yuan / 642 million yuan respectively. Considering that the PE valuation of leading pig companies in the peak years of the first two cycles is usually 11-20 times, the company's 2023 earnings are valued at 11x PE, with a target price of 55.18yuan. Compared with the current stock price, there is still room for 50%. For the first time, the company is given a "highly recommended-A" rating.

Risk hints: pig price performance is not as expected, Hong Kong supply policy or Hong Kong supply quota has changed, company scale expansion is not as expected, and so on.