Event: the company recently released the 2022 mid-term report. In the first half of the year, the revenue was 1.932 billion yuan, down 26.22%; the net profit was-184 million yuan, compared with 39.8028 million yuan in the same period last year; and the net profit was-179 million yuan in the same period last year, compared with 92.219 million yuan in the same period last year. In the second quarter alone, the revenue was 862 million yuan, with a decrease of 36.62%; the net profit of returning to the mother was-36.0496 million yuan, deducting the net profit of non-returning to the mother-41.1877 million yuan, compared with-28.5825 million yuan in the same period last year. The comments are as follows:

The cost of aquaculture business continued to fall, and Q2 basically achieved balance in a single season. In the first half of the year, the company's breeding business achieved sales of 669600 live pigs, an increase of 48.45%, and the cost of commercial pig sales was 17.24 yuan / kg, down 21.24%. The decrease in cost is mainly due to the strengthening of cost index analysis and management, and the production efficiency has improved significantly. In the first half of the year, the breeding delivery rate and the whole group survival rate increased by about 6% and 5% respectively compared with the whole year of 2021. The aquaculture business lost money in the first half of the year, including an estimated loss of 130 million yuan in the first quarter and an estimated profit of 40 million yuan in the second quarter. The turnaround from losses to profits in a single season is mainly due to the bottoming out of pig prices and the continuous reduction of costs in breeding.

Feed business affected by the downturn in pig farming downstream, profits narrowed slightly. In the first half of the year, due to the high prices of raw materials such as corn and soybean meal affected by the conflict between Russia and Ukraine, the company actively promoted the use of low-protein diet formulations and strengthened the procurement of local raw materials to cope with the rise in raw material prices. In addition, the downturn in the downstream pig farming industry affects feed demand. Under the combined influence of the two factors, the feed business as a whole declined slightly, realizing feed sales of 388200 tons, including 125000 tons for domestic sales, 263200 tons for export, and 6.3 percent for export feed. The gross profit margin was 8.94%, down 5.16 percentage points from the same period last year.

Profit forecast and investment advice. In July, pig prices rose rapidly to more than 20 yuan / kg, as of September 8) pig prices operating range of 20-25 yuan / kg, and the fourth quarter is expected to rise further. Benefiting from high pig prices, downstream breeding stocks will be repaired, driving the recovery of feed demand. Benefiting from this, the company's breeding and feed business is expected to improve in the future. In the first half of the year, the company stripped off chemical medicine and acquired minority shareholders' rights and interests of breeding subsidiaries, and further focused on breeding and feed. At present, the fixed increase plan has been approved and promoted smoothly, and the development of aquaculture business will be more financially motivated after the completion of financing. We are optimistic about the strength and flexibility of the company's aquaculture business development, so we maintain a "buy" rating. It is estimated that the net profit of the company in 22x23 is 139x590 million yuan, corresponding to 33.89X/8X PE.

Risk hint: the price of animal protection products fell sharply as a result of the price depression of the aquaculture group, and the intensified competition in the industry led to lower-than-expected sales.