The company is a high-quality pig supplier in Dawan area, leading in the Hong Kong business industry, with obvious profit advantage per head. Since listing, the company has accelerated the expansion of breeding scale, continuously improved the integrated layout, and has great potential for growth in the future.
We estimate that the EPS of the company from 2022 to 2024 will be 0.78, 3.94 and 3.53 yuan respectively. With reference to the average valuation of the comparable company, taking into account the leading level of actual head profit and future growth, the company is given a "buy" rating of 13 times PE in 2023, corresponding to the target price of 51 yuan for the first time.
Company profile: Dawan area high-quality pig suppliers. The company adopts "self-breeding, self-breeding and self-raising integrated ecological breeding".
The business model has formed a complete pig industry chain integrating feed production, pig breeding, pig breeding, commercial pig breeding, live pig supply to Hong Kong and pig sales in the mainland. The company is close to Guangdong-Hong Kong-Macau Greater Bay Area, with market regional advantage and product price advantage. Since its establishment, the company has become the largest supplier of live pigs from the mainland to Hong Kong and Guangdong-Hong Kong-Macau Greater Bay Area's "vegetable basket" production base. In 2021, the company's revenue was 1.05 billion yuan, down 23% from the same period last year, and the net profit was 210 million yuan, down 69% from the same period last year. Although the performance declined due to the continuous decline in pig prices and the rise in feed raw material prices, the company remained profitable as a whole.
Pig farming: the pattern of supply and demand is reversed, and the cycle is prosperous. In the first half of this year, pig prices went out of a "V-shaped trend". Pig prices continued to decline and hit the bottom again in the first quarter, and pig prices entered a new rising channel in the second quarter. By the end of June, national pig prices reached 20.5 yuan / kg, an increase of 64% in the second quarter, exceeding market expectations. Looking forward to the follow-up, with the continuous elimination of breeding sows since June last year and the gradual arrival of the peak demand season, the supply and demand situation of live pigs has been reversed, and the cycle is expected. Taking into account the extent of capacity elimination, we think it is enough to support the high point of pig prices to rise to more than 25 yuan / kg in the next six months.
The supply business to Hong Kong is leading in the industry, and the profit advantage is obvious. The company has obvious advantages in pig supply to Hong Kong, and its gross profit margin has been leading since 2018. On the one hand, it is because the supply of live pigs to Hong Kong brings higher prices, on the other hand, because the company continues to reduce costs and efficiency, and the cost control is relatively excellent. The company has a strong market competitiveness in the Hong Kong market, China, and the number of live pigs supplied to Hong Kong has long been among the best among the mainland enterprises supplying live pigs to Hong Kong, with a high market share. In 2021, 206000 companies supplied to Hong Kong, accounting for 20% of the total supply to Hong Kong. In the long run, with the company's advantages in location, brand, quality and quota, the company's share of Hong Kong supply is expected to increase to more than 30% in the future.
The expansion of pig production capacity has been accelerated and the industrial layout has been continuously improved. The company's pig farming has entered a period of accelerated expansion, and at present, it has reserved 2 million land for breeding projects. in addition, the company has continuously improved the layout of the industrial chain through fund-raising projects. after the completion of the project, it can achieve an annual feed production capacity of 700000 tons and an annual slaughtering and processing capacity of 1 million pigs.
The company has sufficient number of sows, low debt, sufficient cash on hand, and strong ability to expand later. Combined with the company's planning and expansion capacity, we expect that the number of pigs produced by the company will continue to grow in the future, and the number of pigs produced by the company from 2022 to 2024 is expected to reach 180 million pigs. At the same time, with the continuous extension of the industrial chain downstream, the company's profitability is expected to be further improved.
Risk factors: the risk of price fluctuation of livestock and poultry products; the risk of price fluctuation of raw materials; the risk of animal disease outbreak; the risk of change in environmental protection policy; the risk of change in industrial policy; the management risk brought about by the expansion of the company's business scale; the risk of the company's dependence on major customers.
Profit forecast and investment advice: the company's profitability is leading the industry, Hong Kong business is highly competitive, and its share is expected to increase steadily in the future. We estimate that the EPS of the company from 2022 to 2024 will be 0.78, 3.94 and 3.53 yuan respectively. As the profits of pig farming fluctuate greatly affected by the cycle, we mainly choose the PE valuation method. Comparable companies Wen's, Muyuan and New Hope wind unanimously expected an average PE valuation of 11 times in 2023. Taking into account the company's leading head profit level and future growth, the company was given 13 times PE in 2023, corresponding to the target price of 51 yuan, covering for the first time and given a "buy" rating.