Events:
The company released its mid-2020 report, with operating income of 902 million yuan, down 42.29% from the same period last year, and net profit of 232 million yuan, down 73.26% from the same period last year. The company's performance dropped sharply compared with the same period last year, mainly due to the impact of the epidemic and a sharp drop in chicken seedling prices in the first half of the year.
Comments: volume increases, prices fall, performance falls short of expectations
As the epidemic affected downstream demand, and the overall supply of the chicken seedling industry was relatively loose, chicken seedling prices fell more in the first half of the year compared with the same period last year, thus affecting the company's profits. In the first half of the year, the average price of chicken seedlings in Yantai, Shandong Province was 3.63 yuan per feather, down 53.6 percent from the same period last year.
In terms of volume, the company continues to expand production capacity. About 160 million chickens were sold in the first half of the year, an increase of 6.5 per cent over the same period last year, of which sales rose 1.97 per cent in the first quarter and rebounded significantly in the second quarter, up 11.09 per cent from the same period last year. With the easing of the domestic epidemic, the improvement of the consumer side is expected to lead to an increase in demand at the breeding end.
The game between supply and demand in the industry is fierce.
The overall supply pressure of the industry is still large. In 2019, there were 1.22 million sets of ancestral updates in China, a substantial increase of 67% over the same period last year, far exceeding the demand for a balanced supply and demand of the industry in general years. With the release of this part of production capacity, the supply of the industry will increase significantly.
From the demand side, the alternative demand for pork for poultry is the core driver of the high boom of the poultry chain in 2019. At present, pig production capacity is gradually restored, especially in the second half of 2020, pig production is expected to increase significantly, while the alternative demand for chicken will be significantly weakened.
With the increase of supply and the decrease of demand, the price of poultry chain is facing greater pressure, so we expect that poultry industry chain companies will face certain performance downward pressure in 2020.
Downgrade the company's profit forecast and maintain the "overweight" rating
The impact of the epidemic and the increase in industry supply, the price of poultry chain is lower than we originally expected. Therefore, we downgrade the company's profit forecast, and the company's EPS from 2020 to 2022 is expected to be 2.11,1.96,1.79 yuan. The company is the largest caged chicken breeding enterprise in China. Although the performance declined compared with the same period last year, it is still in the profit cycle, so it maintains the "overweight" rating.
Risk Tips:
Product price is lower than expected risk, raw material price fluctuation risk, epidemic risk.