Profits in the first half of the year are still under pressure, while Q2 losses are lower than the previous month. The company's 2022H1 achieved revenue of 1.932 billion yuan,-26.22% year-on-year, and net profit of-185 million yuan,-563.80% year-on-year. Low pig prices and rising grain prices in the first half of the year were the main reasons for the pressure on the company's profits. The total income of the breeding business 2022H1 reached 762 million yuan,-37.23% compared with the same period last year. The number of live pigs in the first half of the year was 669600, + 48.45% compared with the same period last year, and the sales cost of commercial pigs was 17.24 yuan / KG, which was-21.24% compared with the same period last year, but the price of superimposed pigs was low, the gross profit margin was from-37.47pct to-10.03%, and gross profit was from-122.82% to-76 million yuan. After eliminating piglets in July, the average sales price of live pigs has reached 22.38 yuan / KG, which is optimistic that the follow-up performance will pick up. Feed business 2022H1 achieved revenue of 1.009 billion yuan,-6.14% year-on-year, feed sales of 388200 tons (including domestic sales of 125000 tons) in the first half of the year, and export feed volume of-6.30%. Affected by the rise in grain prices, the gross profit margin of the feed business decreased by 5.16pct to 8.94% year-on-year, and gross profit decreased by 40.79% to 90 million yuan.

The existing production capacity has reached 2.5 million, and the column is expected to increase steadily. In terms of production capacity, the company currently has 100000 sow fields, corresponding to fattening production capacity of about 2.5 million, followed by a fund-raising project to increase the production capacity of about 500000. In terms of stock column, as of the end of June, the company has about 20, 000 GP stocks and 4400 GGP stocks. It is estimated that the number of breeding sows will reach about 60, 000 at the end of Q2, and it is planned to reach 9-100000 at the end of the year. The total number of existing breeding pigs, piglets and commercial pigs is about 500000. In terms of performance, the current PSY and MSY are 23 and 20 respectively, and the mating delivery rate and the whole population survival rate in the first half of the year increased by about 6% and 5% respectively over the previous year. Considering that the company has achieved nearly 700000 pigs in the first half of the year, the target of 1.3 million pigs in 2022 is expected to be completed, and the subsequent production is expected to increase steadily.

With scarce production capacity in South China sales area, it is expected to share the excess income. At the present stage, the company has formed a local integrated breeding model of feed processing, breeding and reproduction, and commercial pig fattening in the South China sales area represented by Guangdong, and has widely arranged building breeding projects to improve land utilization. From the revenue side, the transfer of live pigs outside Guangdong province is limited in the short term, and the proportion of self-supply in long-term planning is about 70%. The regional sales premium may persist, and the company is expected to enjoy excess income by relying on scarce capacity. From the cost point of view, the cost of pig sales in the first half of the year has improved significantly compared with the same period last year, and the complete cost is still more than 18 yuan / KG, but the company has recently accelerated management optimization and the relevant results have been reflected in the cost side in the first half of the year, the utilization rate of superimposed pig farm capacity has gradually increased, and there is a large room for complete cost optimization. Taking into account the recent upswing in pig prices, we are optimistic that the company's follow-up profit performance will improve.

Risk hint: there is an uncontrollable epidemic in the process of breeding, and food prices rise sharply to increase feed costs.

Investment advice: cover for the first time and give a "buy" rating. As a new breeding rookie, the company has steadily expanded its production capacity and production capacity, and is expected to benefit from a rebound in pig prices in the short term, geographical advantages in the long-term income side, large room for optimization in the cost side, and optimistic about bottom growth. We expect the company's 22-24-year net return profit to be-0.4 billion, 5.5 billion, 2.0 billion yuan, and the previous share price PE is-110.5, 8.6, and 23.2X.