Revenue grew steadily in 2021 and Q1 2022, and performance was under pressure in the short term. The company achieved revenue of 15.744 billion yuan in 2021, +31.35% year on year, and Guimu's net profit loss was 686 million yuan, -139.87% year on year; the company achieved revenue of 3.392 billion yuan in 2022/Q1, +1.58% year on year, and Guimu's net profit loss was 70 million yuan, -123.12% year on year. Affected by the bottom of the pig cycle and the optimization of the company's production capacity, the short-term pressure on the company's profits was obvious, but it was a normal profit fluctuation at the bottom of the cycle, and the decline in the company's net profit to the mother was superior to that of its peers.

The pig breeding business is growing rapidly, and regional advantages combined with integrated advantages have created a cost moat. In the pig breeding sector, the number of pigs released by the company in 2021 was 1.60.3 million, +19.2% over the same period last year. Among them, self-breeding and self-raising overall sold 1.154,700 heads, and outsourced piglets fattening 448,600. In the slaughter and meat products sector, the company slaughtered 920,000 heads a year in 2021. In the post-cycle sector, the company's feed sales volume reached 2,617,900 tons in 2021, +37.07% compared to the previous year. The company's production capacity is mainly located in northwest China, and by investing in Huitong, Xinjiang to own core corn storage resources, the cost advantage of feed ingredients is expected to continue in the future. In addition, the company adopted a “settlement” whole industry chain development model, perfected the layout from the original breeding - tertiary breeding - fattening, and supported feed and slaughter processing to form a complete industrial chain within each region to achieve optimal results in management, production scheduling, and comprehensive efficiency. With the synergistic effect of upstream, middle and downstream, and the epidemic prevention and control advantages brought about by the northwest regional layout, the company has created a cost moat. It is expected that in the future, as production capacity expands and utilization rates increase, unit costs are expected to drop further.

The expansion of operations has brought about a short-term rise in expenses during the period, and management and operation will continue to be optimized. In 2021, the company's gross sales margin fell 21.22pct to 9.77%, and net sales margin fell 19.2pct to -4.31%.

On the one hand, the profit level of the pig breeding, slaughter and processing, and meat products sales sector declined sharply due to fluctuations in pork prices; on the other hand, due to high corn prices in 2021, the gross margin of the company's grain collection and storage sector fell sharply by 12.27pct to 8.63%. Furthermore, the gross margin of the company's feed sector declined slightly by 0.78pct to 13.35%, but thanks to Xinjiang's location advantage and raw material cost advantage, the gross margin of the feed sector was still far higher than that of comparable companies in the industry. The sales/management/finance expense ratio in 2021 was 15.84%/25.67%/5.77%, respectively, compared to -24.07%/-5.10% and +7.25%. The expansion of the scale of farming has led to a sharp increase in the company's financial expenses, but the company continues to improve organizational management efficiency through executive shareholding, incentive funds, and employee shareholding, etc., which is expected to fully mobilize team enthusiasm from the top down. Costs are expected to continue to improve at the bottom of the cycle, which is optimistic about the company's business development.

Risk warning: the risk of the epidemic, the risk of large fluctuations in raw material prices, and the risk of production capacity expansion falling short of expectations.

Investment advice: First coverage, giving a “buy” rating. The company is a rising star in pig breeding. It has now completed the “settlement” whole industry chain layout. In the future, as self-breeding production capacity expands and capacity utilization increases, costs are expected to drop further. The company's net profit for 2022-2024 is estimated to be -2.08/1424/3,013 billion yuan respectively, and the corresponding EPS is -0.15/1.05/2.23 yuan respectively.