The consumption downturn suppresses chicken prices, and 2Q20's profits continue to decline. In the short term, chicken prices are expected to rebound as consumption turns warmer, and in the medium to long term, chicken prices may enter a downward cycle with the growth of commodity supply. Downgrade the company's profit forecast for 2020 and maintain its "overweight" rating.
The consumption downturn suppresses chicken prices, and 2Q20's annual profit continues to decline. The company released the 2020 mid-term report. During the reporting period, the operating income was 902 million yuan (down 42% from the same period last year) and the profit was 232 million yuan (down 73% from the same period last year). Of this total, 2Q20 achieved revenue of 460 million yuan (down 45% from the same period last year) and profit of 86 million yuan (down 82% from the same period last year and 41% from the previous year). The decline in income and profits is mainly caused by low chicken prices in the context of depressed consumption. 2Q20 sold a total of 8341 million chickens (up 11% year-on-year), with an average price of 2.96 yuan per feather (down 61% from the same period last year and 16% from the previous month). The performance was lower than expected.
As consumption increases, chicken prices are expected to remain high. In the short term, the improvement of the prevention and control situation of the COVID-19 epidemic may lead to a warming of chicken consumption, and chicken prices are expected to rebound in the third quarter. According to the White Feather Chicken Industry Association, about 2.45 billion chicks were sold in the first half of 2020, an increase of 7 per cent over the same period last year. In the medium to long term, combined with data such as parental generation sales, we estimate that the supply of commodity agents will increase by about 10%, 15% in the second half of 2020, and may continue to increase in 2021, and chicken prices may be under corresponding pressure. However, considering that the growth rate of industry supply is still low, and the huge pork gap caused by African classical swine fever is expected to continue to drive the high growth of chicken consumption, we expect chicken prices to remain high in 1-2 years.
Risk factors: chicken prices rose less than expected, breeding epidemic prevention and control failed to improve, food safety incidents.
Investment advice: chicken prices enter the downward cycle, the company profit or pressure downside. Reduce the company's 2020 EPS forecast to 2.44 yuan (originally 2.95 yuan), maintain the 2021 EPS forecast for 22 years to 1.62 Universe 0.44 yuan.
Maintain the "overweight" rating.