Core views

In 2022, the company achieved revenue of 1,609 million yuan (-9.39% year on year), of which the chick business achieved sales revenue of 565 million yuan (-9.64% year on year), sales volume of 259 million feathers (-16.27% year on year), gross margin was -13.72% (+51.28 pcts year on year), due to low prices and cost increases such as superimposed feed; the chicken products business achieved sales revenue of 841 million yuan (+25.78% year on year), sales volume of 71,700 tons (+3.43% year on year), gross margin was - 4.94% (+1.90pcts year over year); net profit of the mother was 452 million yuan (-1049.51% year on year). During the reporting period, the company established Sun company, Hangzhou Minyue, and is responsible for e-commerce platform sales of cooked food. Brand promotion and product sales have developed well. In the future, the company will continue to vigorously develop e-commerce business. Looking ahead to 2023, benefiting from the rebound in industry sentiment, the company's chicken sector is expected to rise sharply; the chicken products sector is expected to turn a loss into a profit as production capacity is released and costs improve; on a comprehensive basis, the company's performance is expected to grow rapidly in 2023.

occurrences

The company disclosed its 2022 annual report, achieving revenue of 1,609 million yuan, a year-on-year decrease of 9.39%; Guimu's net profit was 452 million yuan, a year-on-year decrease of 1049.51%.

Brief review

1. The slump in aquaculture caused the company to lose performance in '22, and Q4 revenue improved month-on-month.

In 2022, the company achieved revenue of 1,609 million yuan (-9.39% year-on-year), net profit of -45,200 yuan (-1049.51% year-on-year), gross sales margin was -7.46% (-25.53 pcts year on year), and net sales margin was -28.90% (-31.30pcts year on year). The company calculated asset impairment provisions of about 49 million yuan at the end of 2022, and is expected to reduce net profit attributable to the mother by about 48 million yuan.

The 22Q4 company achieved revenue of 524 million yuan (+61.89% year on year, +17.67% month on month), mainly due to the significant increase in the price of chicken seedlings, and the net profit of the mother was 120 million yuan (-1.05% year-on-year, -246.25% month-on-month).

In terms of expenses: In 2022, the company's sales/management/R&D/finance expenses were 1.01/1.18/0.18/- $0.02 billion, respectively, up year-on-year

225.40%/7.19%/65.27%/75.31%; of these, the increase in sales expenses was mainly due to the commencement and operation of the company's chicken deep processing project, the company's cooked food projects in Penglai and Weifang officially put into operation, and Sun's e-commerce platform sales business in Hangzhou Minyuehe in the promotion period; the increase in financial expenses was due to the company's increased borrowing to maintain a good operating level, and the corresponding increase in expenses.

2. The sharp drop in volume and price caused the chick business to lose money in '22, and is expected to achieve good profits in '23.

In 2022, the company sold 259 million chicks (-16.27% year on year), due to poor market conditions for white feather broilers. The company's chicken fry sales fell significantly, achieving sales revenue of 565 million yuan (-9.64% year on year); gross margin was -13.72% (year-on-year - 51.28pcts), mainly due to the decline in gross margin ① The high volume of ancestral chicken introduced in 2019-2021 led to a large supply of chicken seedlings in the market. Combined consumption was sluggish, and the price of chicken seedlings in the industry dropped significantly. In 2022, the company's chicken feather price dropped significantly. 27.82%); ② The increase in the purchase price of raw materials such as corn and soybean meal required for farming led to the company's operating cost of 2.48 yuan per chick in 2022 (+31.22% compared to the same period last year). Looking ahead to 2023, the interruption of the introduction of ancestral chicken in the early stages may lead to a reduction in the supply of chicken seedlings for subsequent products. Combined with a recovery in consumption and a marginal improvement in breeding costs, the profitability of the company's chicken seedlings business is expected to increase significantly. In the annual inventory of 800,000 sets of parental broiler chicken breeding park projects, the first batch of 110,000 sets of parent breeders entered the project park to begin breeding in November 2022, and the second half of 2023 will gradually produce chicken seedlings to supply the market; in 2023, the company will also add 2 farms, and the release of production capacity will drive growth in chicken sales. A comprehensive look at this sector of the company It is expected to achieve a good profit.

3. The gradual release of production capacity has led to sales growth, and the cooked food e-commerce business is developing well.

In 2022, the company sold 71,700 tons of chicken products (+3.43% year on year), and the Penglai and Weifang cooked food projects put into operation led to a slight increase in sales; achieved sales revenue of 841 million yuan (+25.78% year-on-year); gross margin was -4.94% (+1.90pcts year on year). During the reporting period, the company set up its own subsidiary Hangzhou Minyue in Hangzhou and was responsible for selling cooked food on e-commerce platforms, including Tmall and Douyin. The company also promoted its brand through live streaming and achieved a certain level of brand awareness. In 2022, Minhe's five private live broadcasts were viewed 250 million times. The products were ranked TOP1 in the Douyin e-commerce chicken industry sales list, the TOP2 premium meat stores on Douyin, and the top 3 self-broadcast rankings of merchants in the food and health industry. Looking ahead to 2023, ① In terms of volume, by the end of 2022, two production lines for the Minhe 30,000 ton cooked food processing project had begun operation (4 production lines in total), and the progress of the Weifang Minhe 30,000 ton meat processing project was over 75%; the gradual commissioning of the cooked food processing project mentioned above will drive the company's sales in the chicken products sector to increase. ② On the positive side, as consumption recovers, the company's chicken product prices are expected to show an upward trend. Combined with the increase in the company's capacity utilization rate, leading to lower costs such as depreciation and amortization, the chicken products sector is expected to turn a loss into a profit.

③ In terms of brand and channel construction, the company's cooked food e-commerce project is still in the expansion period. The company will continue to increase investment in cooked food sales channel construction and promotion in the future to expand brand awareness.

4. Profit forecast: Considering the continued boom in chicken seedlings prices and the increase in the company's product sales, the company's chick sector's performance is expected to grow rapidly; the chicken products sector is expected to turn a loss into a profit as production capacity is gradually released and costs drop. Overall, the company's 2023 performance is expected to increase significantly. Assuming that product prices are relatively stable in 2024-2025, the company's performance may grow steadily as production capacity is released to drive an increase in product sales. The company is expected to achieve revenue of 2,708/30.15/3,326 billion yuan in 2023-2025, net profit of 503/586/603 million yuan, EPS is 1.44/1.68/1.73 yuan/share respectively, and the corresponding PE is 14.78/12.70/12.35x respectively, maintaining the “increase in holdings” rating.