Summary of the report

1. Feed plate: the volume is increasing rapidly, waiting for the industry to pick up

At present, the company has formed a full category pattern with high-end materials and blending materials as the core and covering other varieties at the same time. The whole category strategy has led to the rapid growth of feed production and sales. From 2011 to 2018, feed sales more than doubled from 376000 tons to 769200 tons. In 2019, the company's feed sales were 602400 tons, down 21.68% from the same period last year, mainly due to the decline in the stock of the downstream pig breeding industry affected by African classical swine fever and a significant reduction in the total demand of the feed industry.

2. Aquaculture plate: encourage landing & release of production capacity, and inject nuclear power into the development of aquaculture business.

The release of production capacity is expected to double in 2020. Of the company's four existing breeding bases, Northeast Tieli and Fujian Yichun are expected to be put into production in the second quarter of 2020, with an additional production capacity of 400000 and 100000 respectively. It is estimated that 400000 new commercial pigs will be added to the northeast Tieli and Fujian Yichun bases in 2020, bringing the company's total number of commercial pigs to 800000, an increase of 100 per cent over the same period last year.

The company launched a restricted stock incentive scheme to inject nuclear power into the development of the aquaculture business. In order to meet the unlocking conditions corresponding to the restricted stock incentive plan, the number of pigs produced by the company in 2020, 2021 and 2022 should not be less than 800000 / 1.39 million / 2.38 million, with an average annual compound growth rate of 81.8 per cent. The production capacity construction and launch of many pig breeding bases such as the northeast of the company have made rapid progress, combined with this incentive landing, we judge that it is possible to achieve the goal of hurdling in the next three years, so it is very flexible.

Profit forecast

It is estimated that the number of pigs produced by the company will be 800000 / 1.5 million in 2021, and the net profit in 2020 will be 903 million / 1.207 billion respectively, corresponding to an EPS of 1.60 prime 2.15 (the total share capital is the total share capital after a private offering), with a target price of 16.00 yuan.

Risk hint

1. The risk of a sudden major epidemic: large-scale diseases such as African classical swine fever or bird flu will occur in the process of livestock breeding, which will lead to the death of livestock and have a greater negative impact on the consumer psychology of the general public, resulting in a shrinking market demand. thus affecting the profitability of the industry and related enterprises.

2, the risk that the price is lower than expected: the price of livestock and meat falls sharply or rises less than the rising rate of cost, which affects the profitability of the industry and related companies, and there is a risk that it is difficult to sustain growth or even decline in future performance.

3. The risk of price fluctuation of raw materials: the output and prices of the main raw materials and agricultural products used in the company's production and operation are greatly affected by uncontrollable factors such as weather and market conditions. If the prices of major raw materials fluctuate sharply in the future, it will affect the profitability of the industry and related companies.

4. The listing of non-plague vaccine: the listing of effective non-plague vaccine will fundamentally block the spread of non-plague epidemic, the progress of capacity removal will be affected, and the increase of pig price may not meet expectations.

5. After the outbreak of COVID-19 epidemic, the opening time and operating rate of the slaughterhouse were lower than expected, the pig price was greatly affected, and the consumption was lower than expected.