In 2022, with pig prices showing an upward trend during the year, the improvement in gross margin and the reduction in asset impairment losses contributed to the improvement in the company's profitability, and the overall profitability of 2023Q1 remained stable. The core developed prepared food business performed well, products and channels expanded smoothly, and it is hoped that it will continue to develop rapidly in the future, push the company to successfully complete business transformation and calm cyclical fluctuations in performance.

In 2022, the company's revenue fell 17.4% from the same period, turning a loss into a profit. 2023Q1 revenue/net profit attributable to the mother was +4.1%/-9.6% year on year. In 2022, the company achieved revenue of 16.12 billion yuan, a decrease of 2.4% (same increase of 17.1% in Q4); achieved net profit of 75.38 million yuan and a loss of 660 million yuan in the same period last year (Q4 achieved net profit of 26.08 million yuan, loss of 990 million yuan in the same period last year). 2023Q1 achieved revenue of 3.48 billion yuan, an increase of 4.1% over the same period; it achieved net profit of 26.08 million yuan, a decrease of 9.6% over the same period.

The development of the slaughter business is highly correlated with pig price trends, and the prepared food business has performed well. By sector, 1) Slaughter business: Achieved external revenue of 12.03 billion yuan in 2022, a year-on-year decrease of 17.4%. On the one hand, pig prices showed an upward trend in 2022, which led to the company's pig slaughter volume falling 8.1% year on year to 5.89 million heads in 2022. Furthermore, the average price of pigs in 2022 was lower than in 2021. In terms of pig breeding, the number of pigs released in 2022 was 50.1 million heads, an increase of 25.6% year on year, continuing to improve the industrial chain layout. In 2023Q1, the slaughter business achieved revenue of 2,397 million yuan, a decrease of 2.9% from the same period. This was mainly due to the decline in slaughter volume and average price of pigs. The number of pigs released was 185,000 heads, an increase of 79.2% over the same period. 2) Food business: In 2022, it achieved revenue of 1.65 billion yuan, an increase of 7.1%. Among them, cooked food products achieved revenue of 3.4 billion yuan, a decrease of 6.2%, and pre-prepared dishes focused on development achieved revenue of 1.31 billion yuan, an increase of 11.2%. The B-side of the company's prepared food customers accounted for about 90%, and positive growth was still achieved under the influence of the pandemic. With 2023Q1, the company's prepared food business achieved revenue of 458 million yuan, an increase of about 71% over the same period. As the impact of the epidemic gradually subsided, terminal demand picked up rapidly. In addition, the company is rapidly expanding its prepared food business channels. In 2022/2023Q1, it opened 500+/180+ new prepared food dealers, and currently has nearly 1,000 professional prepared dish dealers.

Improved gross margin and lower asset impairment losses contributed to increased profitability in 2022, and 2023Q1 profitability remained stable year over year. In 2022, the company's gross margin increased 2.2 Pcts to 4.0% year on year. The gross margin of the core business slaughter and food business was relatively stable, +0.3/+0.0Pct, respectively, and the gross margin of the trade business/other business increased 9.6/4.2 Pcts year on year. The cost ratio is generally stable. The sales expense rate/management expense rate/R&D expense rate/financial expense ratio in 2022 were -0.1/+0.2/+0.0/-0.1Pcs respectively. Furthermore, asset impairment losses decreased by 590 million yuan, mainly due to the upward trend in pig prices during the year. As a result, the company's net interest rate to the parent increased by 3.8 Pcts to 0.5% in 2022. In 2023Q1, the company's gross margin increased by 1.0 Pct to 4.7%, and the overall expense ratio decreased. The sales expense rate/management expense rate/R&D expense rate/financial expense ratio were -0.2/+0.0/+0.0/-0.5 Pct, respectively. The total decrease of 0.7 Pct over the same period last year. Among them, the decline in the financial expense ratio was mainly due to the increase in interest income.

Furthermore, the amount of asset impairment losses turned back decreased by 73.91 million yuan over the same period last year, mainly due to the decline in pig prices in 2023Q1, and the decrease in profit and loss from asset disposal by 21.37 million yuan. As a result, net interest rate returned to the mother in 2023Q1 fell 0.1 Pct to 0.6% year on year.

The short-term performance trend is still mainly affected by pig price trends, and the prepared food business is expected to continue to develop rapidly.

The company announced a “two wings in one” development strategy at the end of 2021, focusing on developing the prepared food business based on the advantages of raw materials formed from the farming and slaughter business. In the short term, since the company's prepared vegetables are relatively small, the breeding and slaughter business, which is highly related to pig price trends, is still the main influencing factor in the company's performance fluctuations. At present, the company's prepared food business is in a stage of rapid growth. 2023Q1 has made a good start. In 2022, prepared dishes have already settled into 100 million yuan products such as fat sausage, bacon, and crispy meat. Customers include over 100 million customers such as Yum Sheng, Haidilao, and Hommel, and 2023Q1 developed new major customers such as Cuddy Coffee. As the company's strategic development business, with the rapid expansion of the company's products and channels, the prepared dish business is expected to maintain rapid development in the future.

Risk factors: Risk of large fluctuations in pig prices; expansion of new products of prepared dishes fell short of expectations; expansion of prepared food channels fell short of expectations; market competition intensified sharply; food safety issues.

Investment advice: Adjust the 2023-2024 EPS forecast to 0.10/0.19 yuan (the original forecast was 0.17/0.34 yuan), adding the 2025 EPS forecast to 0.36 yuan, taking into account factors such as pig price trends and the company's performance. As the scale of the company's prepared food business continues to develop rapidly, the company is expected to successfully complete business transformation and calm cyclical fluctuations in performance. It is recommended to focus on the development progress of the company's prepared food business.