The breeding business is advancing, and the operation stage is under pressure
In '22, the company achieved operating income of 7.08 billion yuan, an increase of 29.31% over the previous year; net profit of 175 million yuan, an increase of 32.17% over the previous year; and achieved net profit attributable to shareholders of listed companies of 130 million yuan, an increase of 55.27% over the previous year. In terms of special water feed, sales revenue for the full year of '22 was 2.13 billion yuan, with sales volume of 206,000 tons (+25.77% year on year), and Q4 single-quarter sales of 50,900 tons (+41.9% year on year, significantly faster); in terms of livestock and poultry feed, sales revenue was 4.29 billion yuan for the full year of '22, with sales volume of 1,248 million tons (+13.72% year-on-year), and Q4 sold 347,000 tons in a single quarter (+6.4% year-on-year). In terms of eel farming, about 6,100 tons of eels were released from ponds throughout '22. In the first three quarters of '22, the company sold 5819.35 tons of commercial eels. Since the fourth quarter, due to factors such as the macro environment, climate, and labor shortages, the company has reduced the quantity of eels produced by the specification. Looking at overall profit, the company's profitability was under pressure such as rising feed ingredients and aquaculture diseases in '22. The gross profit margin for specialty aquatic products is 15.25% (-2.62 pcts year on year), and the gross profit margin for livestock and poultry feed is 4.95% (-1.48 pcts year on year). Looking at a single quarter, the Q4 company lost 110 million yuan in '22, and reversed the loss month-on-month in Q1 in '23 to achieve net profit of 5.613 million yuan.
Eel farming is advancing at an accelerated pace
Eel farming has become an important new growth driver for the company. The company released about 6,100 tons of eels from the pond in '22, achieving farming sales revenue of 513 million yuan, a year-on-year increase of 487.74%. As of March, the company's aquaculture production bases in Fujian, Guangdong, Guangxi, Jiangxi and Hubei have all been put into operation. The company and its consolidated subsidiaries have progressively deployed eel farming capacity in Ningde, Nanping, Sanming, Jiangxi Gaoan and Shangrao regions. At the same time, the company is accelerating the construction progress of its own eight major fishery industry clusters, where it is expected that the annual production capacity will increase by more than 5,000 tons after the new breeding base is put into operation.
The eel market cycle is improving
The fundamentals of supply and demand support the positive eel market. 1) On the supply side, the overall harvest of East Asian eel seedlings declined this season.
As of mid-April, the East Asian region had caught a total of 33400-33450 kg of eel seedlings (catches in the three East Asian countries -- regions only began to pick up in the latter half of the fishing season; in the end, a total of 42.5 tons of seedlings were harvested). Among them, mainland China received more than 26,000 kg of seedlings, accounting for 77.8% of the total; Japan received 4,500 kg of seedlings, accounting for 13.5% of the total; South Korea received 1,100 kg of seedlings, accounting for 3.3% of the total. 2) On the demand side, consumption is recovering, and demand for eel is strong. In terms of exports, according to data released by China's General Administration of Customs, China exported 14,400 tons of live eels in 2022, with an export value of 255 million yuan, up 39.1% and 43.3% respectively over the previous year. On the domestic side, domestic sales of eel were 120-130 tons per day after the Spring Festival, nearly double the average daily sales volume of 60-70 tons in the same period last year.
Investment advice
Tianma Technology is a large-scale modern fishery and animal husbandry group enterprise integrating specialty fishery, animal husbandry, and food products into one, two, and three industries. The company's traditional feed, seedlings, and animal insurance business continues to grow. The eel farming business is advancing at an accelerated pace, and the cycle is improving. We are optimistic about the company's performance. We expect the company's net profit to be 370 million yuan, 630 million yuan, and 1.07 billion yuan respectively in 2023-2025, and EPS of 0.85 yuan, 1.45 yuan, and 2.45 yuan respectively. Corresponding to PE of 23.24 and 25 will be 18.98, 11.13, and 6.60 times, respectively, maintaining the rating and giving a “buy” rating.
Risk warning
Risks such as fluctuations in the livestock, poultry and fishery industry cycles, and the expansion of eel farming falling short of expectations.