Events:

Hefeng shares released its mid-2023 report: revenue in the first half of 2023 was 16.708 billion yuan, an increase of 21.19% over the same period last year; its mother's net profit was-25 million yuan, from profit to loss. Of this total, the revenue in the second quarter was 8.864 billion yuan, an increase of 19.59% over the same period last year, and the net profit returned to the mother was-45 million yuan.

Comments:

Feed market share continues to increase, and the poor transmission of cost pressure affects profits. During the reporting period, in the face of the unfavorable situation of the general downturn in the downstream aquaculture industry and sluggish feed demand, the company continued to unswervingly implement the strategic transformation from "channel advantage" to "equal emphasis on channel and scale farm". Actively open up large-scale farm customers, the company's feed sales still increased by 11% to 1.979 million tons in the first half of the year.

However, the prices of feed raw materials such as corn and soybean meal fluctuated sharply, and the recession in the aquaculture industry led to the transmission of rising pressure to the lower reaches. Although the company cooperated to reduce cost and increase efficiency by optimizing formula and reducing loss, feed tonnage still declined. Recently, pig prices have rebounded significantly, feed price increase channels have been opened, and feed business profitability is expected to be improved.

Taking into account the steady expansion of quantitative profits, the prosperity of white chicken is expected to be transmitted downwards. Due to the concentrated molting of the white chicken industry at the end of last year, the supply of commercial chicks was unstable, and the price of hairy chickens rose first and then fell, fluctuating greatly. And the recovery rate of terminal consumption in the first half of the year is not as fast as expected, the profit of the white chicken industry is differentiated, the upstream breeder chicken makes a lot of profit, while the downstream breeding and slaughtering shows a loss. In the face of the complex market environment, the company takes into account both quantitative profits and steady expansion. In the first half of the year, controlling and participating enterprises slaughtered a total of 370 million white-feathered broilers, an increase of 16% over the same period last year.

With the reduction of the impact of ancestral introduction, the profit growth of the company's meat and poultry industry is in sight.

Continuously optimize pig management and continuously improve breeding performance. The pig breeding industry suffered deep losses in the first half of the year, and the company made great efforts to control the scale and adjust the structure, with strengthening management and cost control as the core, while strictly controlling the overall scale, decisively eliminating backward production capacity, constantly improving the breeding system, and steadily improving breeding results. During the reporting period, the controlling and participating enterprises produced a total of 530000 live pigs, an increase of 20.7% over the same period last year. Although it has caused some losses in the short term, it will help the company to optimize its industrial layout and pass through the industry trough.

Profit forecast and valuation: in view of the fact that the recovery in consumption is not as expected, leading to the poor transmission of feed and white chicken prices downstream, we downgrade the company's profit forecast for 2023 to 330 million yuan, but maintain the 2024-25 net profit forecast of 625 million yuan unchanged, the corresponding EPS is 0.36 picks 0.68 picks 0.76 yuan, and the valuation of the corresponding pre-PE is 25.3513.39 picks 12.05 times. Maintain the overweight rating.

Risk tips: fluctuations in raw materials and pig prices, breeding diseases, performance forecasts and valuations are not up to expectations.