Supply shortages have pushed up fish prices and significantly improved the company's profitability. As the early COVID-19 epidemic led to a reduction in the number of seedlings and the number of culture licenses issued, the scale of global salmon culture has been reduced. In addition, the epidemic of Norwegian salmon was relatively serious at the end of last year, and a large number of salmon were harvested ahead of time. As a result, global salmon supply fell by 6% in the first half of 2022 compared with the same period last year, while demand gradually picked up as catering and trade recovered in an orderly manner, and the gap between supply and demand pushed salmon prices up rapidly. According to the Urner Barry salmon price index, the average price of 22H1 salmon increased by 30.4% compared with the same period last year. Driven by the high demeanour of the industry, the company's average sales price of Atlantic salmon reached US $7.10 / KG (YOY+46.9%) in the first half of the year. Despite the rise in farming costs, the gross profit margin of the company's products increased significantly to 18.3%.

The company sold 36000 tons of salmon (including trout) in the first half, and the annual harvest is expected to reach 95000 tons, and the company's results are expected to be further released as the harvest increases in the second half of the year.

Salmon culture license tightened, supply and demand pattern to support the price center upward. The salmon aquaculture industry is strictly regulated by the government, and only enterprises that have obtained farming licenses can carry out aquaculture in the corresponding sea areas.

In recent years, due to the increasing pressure on the water environment, Norway and Chile, the two major producers that account for nearly 80% of the world's Atlantic salmon production, have strengthened their control over salmon farms. In May this year, the Chilean president made it clear that he would enact a bill to limit the expansion of salmon farming, and in July, the license of salmon was revoked for the first time because of overfarming. The expansion of global salmon culture is limited, and it is expected that supply and demand will maintain a tight balance for a long time in the future, thus supporting the upward price center of salmon.

C-end product matrix is increasingly rich, channel development is vigorously promoted. The company's brand lines have launched new products one after another, including chilled salmon products, salmon fresh shrimp vegetable cake, Korean lemon grapefruit salmon and other flavor prefabricated foods, and Chanxiong students' lunch meat, fresh steamed and baby standard jam products, etc., the product matrix is becoming more and more abundant. The company continues to strengthen the channel layout, on the basis of the original box horse, Meituan and other channels, opened up a new retail brand Chao Pu supermarket; offline channel development has also made positive progress, has been stationed in dozens of national and regional well-known mother and child terminals.

Profit forecast and investment advice: driven by high profits in the industry at the beginning of the year, the recent harvest pace of salmon has obviously accelerated, leading to a decline in salmon prices. We reduced the company's 2022-24 net profit to 1.89257pm respectively 416 million yuan, corresponding to EPS 1.48pm 2.39 yuan, respectively, to the pre-PE valuation of 22.13max 16.29pm 10.08 times. With reference to the valuation level of the comparable company, the company was given 20 times PE in 2023, lowered its target price to 29.51 yuan, and downgraded to overweight rating.

Risk tips: performance forecasts and valuation judgments are not up to expectations, food safety risks, exchange rate fluctuations.