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 maintain the EPS forecast of the company from 2022 to 2024 is 0.78 3.94max 3.53 yuan respectively. With reference to the valuation level of the comparable company, taking into account the leading profit level and future growth of the company, it will be given 13 times PE in 2023, corresponding to the target price of 51 yuan, and maintain the "buy" rating.
The overall performance was dragged down by the downward price of pigs. According to the company's semi-annual report for 2022, 22H1 achieved operating income of 461 million yuan, down 29.57% from the same period last year, and its net profit was-59 million yuan, down 125.50% from the same period last year. The average price of 22H1 pig sales dropped sharply compared with the same period last year, and pig farming business dragged down the company's overall performance, stopping profits and turning losses. In addition, the company's joint venture subsidiary Qingyuan Dongqi aquaculture business loss and the impact of the flood in June caused abnormal losses, resulting in a loss of 19.5 million yuan in investment income in the first half of the year, further dragging down the performance.
Although the price of live pigs has fallen, it still maintains a significant premium in the Hong Kong Special Administrative region. In the first half of the year, the company sold a total of 242800 live pigs, an increase of 36.50% over the same period last year. The average price of commercial pigs was 18.82 yuan / kg, down 47.65% from the same period last year. The sales revenue of the live pig business was 429 million yuan, down 27.54% from the same period last year. Although pig prices fell in the first half of the year, the company still had a gross profit margin of 12.90% because it had the advantage of both Guangdong province and Hong Kong SAR's high-priced markets. From a market point of view, the company's pig supply business income is about 253 million yuan, gross profit margin is 27.2%, per head gross profit is about 573 yuan; domestic sales revenue of live pigs is 177 million yuan, gross profit margin is-7.6%, per head gross profit is about-109 yuan. Hong Kong pig market premium is obvious, the company's Hong Kong supply business to maintain a significant excess income.
The advantages of pigs supplied to Hong Kong remain unchanged, and H2 is expected to rise in volume and profit. Looking forward to the second half of the year, with the release of production capacity, we expect that the number of pigs produced by the company is expected to reach more than 300000, of which about 180000 pigs are supplied to Hong Kong, a certain increase compared with the first half of the year. In terms of price, the average price of live pigs in Hong Kong in July was about 31.5 yuan / kg, an increase of about 9 yuan / kg compared with June, and the average price in Guangdong Province was about 24 yuan / kg, which was about 5 yuan / kg higher than that in June. we expect pig prices in the two places to remain high in the second half of the year. In terms of cost, the complete cost of the company's commercial pigs in the first half of the year is about 18 yuan / kg, and there is still room for further decline during the year. From a comprehensive point of view of price and cost, the average profit level of the company in the second half of the year is expected to further increase, superimposed column growth, the company's pig business is expected to usher in a rise in volume and profit.
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 ratio, 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 551,200,000. At the same time, with the continuous extension of the layout of its industrial chain, 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; the risk of change in environmental protection policy; the risk of the company's dependence on major customers.
Earnings forecast, valuation and rating: the company's profitability is leading in the industry, the Hong Kong business is highly competitive, and its share is expected to increase steadily in the future. We maintain the EPS forecast of the company from 2022 to 2024 is 0.78 3.94max 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 profitability and future growth, it will be given 13 times PE in 2023, corresponding to a target price of 51 yuan (maintenance), maintaining a "buy" rating.