Event

The company disclosed that 2022H1's revenue was 8.817 billion yuan, an increase of 7.27% over the same period last year, and its net profit was-677 million yuan, down 316.18% from a year earlier. 2022Q2 realized revenue of 4.662 billion yuan, an increase of 7.78% over the same period last year, an increase of 12.20% over the previous year, and a net profit of-325 million yuan, a decrease of 0.13% and an increase of 7.57% over the same period last year.

Brief comment

1. 2022H1's revenue keeps growing, and low pig prices are a drag on short-term profits.

The company's 2022H1 achieved revenue of 8.817 billion yuan, an increase of 7.27% over the same period last year, mainly due to the increase in the scale of feed sales, the number of live pigs and the size of the food sector; the net profit of returning to the mother was-677 million yuan, down 316.18% from the same period last year. 2022Q2 achieved revenue of 4.662 billion yuan, an increase of 7.78% over the same period last year and 12.20% month-on-month growth. The net profit returned to the home was-325 million yuan, down 0.13% from the same period last year and up 7.57% from the previous year.

According to the business segment, the income of 2022H1 feed business is 5.022 billion yuan, up 11.11% from the same period last year, the gross profit margin is 4.50%, which is 1.28pcts lower than 2021H1; the income from breeding business is 1.948 billion yuan, down 9.03% from the same period last year, and the gross profit margin is-20.48%, 39.92pcts lower than 2021H1; the income from trade business is 559 million yuan, down 30.78% from the same period last year, and the gross profit margin is 1.43%, which is lower than 2021H1 by 0.06pcts. The income of the food business was 1.239 billion yuan, an increase of 76.39% over the same period last year, and the gross profit margin was 4.63%, which was 3.48pcts lower than that of 2021H1; the income of animal insurance of veterinary drugs was 15.6543 million yuan, down 23.83% from the same period last year, and the gross profit margin was 38.71%, which was lower than 2021H1 by 6.85pcts. The company's 2022H1 sales gross profit margin of-1.02%, lower 10.36pcts than 2021H1, net sales margin of-10.25%, lower 9.07pcts than 2021H1.

From the expense point of view, the company's 2022H1 sales expenses are 188 million yuan (year-on-year + 21.21%), which is mainly due to the expansion of the company's operating scale and the increase of sales staff; the management expenses are 299 million yuan (year-on-year + 2.91%), mainly due to the increase in depreciation and amortization expenses; the financial expenses are 282 million yuan (year-on-year + 49.95%), mainly due to the increase in financing scale and the increase in financial expenses apportioned by the new lease criteria. The R & D expenditure is 71.8942 million yuan (year-on-year + 39.01%), mainly due to the company's increased investment in R & D, the salary expenditure of R & D staff and the cost of R & D materials.

2. The market share of feed business continues to increase, and the production capacity expands steadily.

2022H1 produces 1.5894 million tons of feed, accounting for 1.16% of the national feed output, of which pig feed output is 1.1627 million tons, accounting for 1.93% of the national pig feed output, with an increasing market share. 2022H1 achieved feed sales of 1.3217 million tons, an increase of 3.50 percent over the same period last year, of which pig feed sales were 772200 tons, up 1.15 percent over the same period last year; poultry feed sales were 337500 tons, down 6.02 percent from the same period last year; and sales of other materials (aquatic materials, ruminants and other materials) were 212100 tons, up 37.19 percent over the same period last year.

The price per ton of 2022H1 feed is 3799.67 yuan, an increase of 7.35% over the same period last year, and the cost per ton is 3628.69 yuan, an increase of 8.81% over the same period last year. Due to the lag of price increase and the difference in the range of product price increase, the gross profit margin of the company's feed business has declined. Sales of ① pig feed may remain relatively stable in the second half of the year; poultry feed may recover due to downstream farming boom, and sales may be higher than that in the first half of the year; aquatic products and other feed will maintain relatively high growth due to low base. The listing of corn in the new season of ② will ease the supply pressure, and the price of raw materials has dropped to a certain extent from the previous high, and it is expected that the feed cost in the second half of the year will be lower than that in the first half of the year. Taken together, we think that the performance of the company's feed business in the second half of the year is better than that in the first half of the year.

At present, the company has more than 7 million tons of feed production capacity, and its business covers more than 20 provinces, municipalities and autonomous regions across the country. The Yongxin County Feed Phase I project started by the company in 2021H2 will be completed and put into production in 2022H2, when it will add 180000 tons of feed capacity. In the future, the company will further give full play to the scale effect and brand effect of the feed industry, through the strategic planning of expanding and strengthening pig feed products, maintaining moderate scale of poultry feed, and actively developing aquatic products and ruminants, towards the short-term goal of feed export exceeding 5 million tons and the medium-term goal of 10 million tons.

3. The number of live pigs is greatly increased, and the profit level is expected to be improved.

The number of pigs produced by 2022H1 Company was 2.3439 million, an increase of 86.14% over the same period last year. In terms of column structure, we estimate that the proportion of fattening pigs in the company is about 40%, and the rest are piglets, a small number of breeding pigs and eliminated sows. The company plans to produce 8 million pigs in 2023 and 10 million in 2024.

In terms of production capacity: by the end of June 2022, the company's productive biological assets were 1.145 billion yuan, down 4.26% from the beginning of the year, mainly because a small number of inefficient sows were eliminated by the company since the end of last year. The company can keep more than 270000 breeding sows and more than 70,000 reserve sows. At present, the company can breed about 300000 sows, and with the gradual recovery of the prosperity of the industry, the company is expected to gradually increase the number of sows, which may reach 340000 by the end of the year; the company has about 350000 sows, and is expected to steadily increase to 370000 by the end of this year. As for fattening pigs, there are about 2 million fattening houses, and the company plans to increase the number of fattening houses to 2.7 million by the end of the year to ensure that the target of fattening will be achieved in the next two years.

In terms of production performance: ① Company continues to improve production efficiency through the continuous improvement of management efficiency, PSY has increased from 20.8 last year to more than June 24 this year, the survival rate of the delivery room is about 95%, the survival rate of the whole fattening process is about 93%, and the mating rate of sows is restored to more than 80%. The complete cost of finishing pigs in ② company was about 19 yuan / kg in the first half of the year, and decreased slightly in the second quarter under the background of feed price increase, and the complete cost of weaned piglets in the second quarter was 420-430 yuan per piglet.

Looking forward to the second half of the year, the company will continue to improve the cost by improving the utilization rate of sows and improving the supporting work of fattening pigs, and move forward to 17 yuan / kg for fattening pigs and 400 yuan / kg for weaned piglets.

4. The food sector is growing rapidly, and the asset-liability ratio is gradually decreasing.

Thanks to the company's active expansion of the food business market, the income scale of the food sector has achieved rapid growth, and the sales network has covered Fujian, Jiangxi, Sichuan, Hubei, Henan, Shandong and other places. 2022H1 Company completed the slaughtering of 352700 heads, an increase of 82.76% over the same period last year, and the number of pig trade completed was 285700, an increase of 1392.58% over the same period last year. At present, the company's food business is still in the initial stage of development, as the company gradually increase slaughtering and food processing capacity, expand market channels, food business is expected to continue the high growth trend.

By the end of June 2022, the company's asset-liability ratio was 84.30%, down 5.62pcts from the end of the first quarter; the company's short-term borrowing was 3.897 billion yuan, an increase of 2.90% over the end of the first quarter; and cash and cash equivalents were 633 million yuan, an increase of 222 million yuan over the end of the first quarter. Since May, with the rebound of pig prices, the company's cash position has improved significantly, and pig prices are expected to operate at a relatively high level in the second half of the year, and the superimposed company will further reduce costs and increase efficiency, and the company's operating performance is expected to improve, which is conducive to the optimization of the company's asset-liability structure.

5, profit forecast and rating: on the one hand, ① 's fattening pig price has been maintained at more than 20 yuan / kg since July, which is higher than the company's complete pig breeding cost; on the other hand, the piglet price is also higher than the company's weaned piglet complete cost; we think that the company's pig farming is expected to make a better profit in the second half of the year. ② food and feed business is expected to develop relatively steadily. Taken together, we expect the company to be profitable in 2022; with the growth of the company and the decline in breeding costs in the next two years, the pig business is expected to continue to be profitable, coupled with the continued growth of the feed and food sectors, the company's performance is expected to grow at a high speed. It is estimated that the operating income from 2022 to 2024 will be 235.77x42.942 billion yuan, the net profit will be 0.50,827,1.07 billion yuan, the EPS will be 1.21 billion yuan per share, and the corresponding PE will be 280.0x/16.8x/12.5x, respectively, maintaining the "overweight" rating.

Risk hints: the risk of epidemic situation of livestock and poultry, the risk of price fluctuation of main raw materials, the risk of fluctuation of pig price, the risk of higher asset-liability ratio, the greater risk of accounts receivable, the risk of external guarantee, etc.