The company disclosed its mid-2023 report. In the first half of 2023, the company's operating income was 16.708 billion yuan, + 21.19% compared with the same period last year, and the net profit was-25 million yuan,-154.37% compared with the same period last year. The operating income of 2023Q2 company was 8.864 billion yuan, + 19.59% compared with the same period last year, and the net profit was-45 million yuan,-125.62% compared with the same period last year.

The market of raw materials is changeable and the feed is under pressure. In the first half of 2023, the downstream aquaculture industry was depressed, which hindered the downward transmission of raw material price changes to a certain extent, and domestic feed enterprises faced great challenges in cost control.

In this regard, the company from the technology, procurement, operation and other directions, various departments closely linked to work together to reduce costs and increase efficiency. In the first half of the year, the sales of feed outside the company within the scope of the merger were 1.979 million tons, an increase of 11% over the same period last year, of which premix, concentrate and formula increased by 34%, 5% and 13% respectively.

White chicken expands its scale and accumulates its strength in the business cycle. In the first half of 2023, company-controlled shareholding enterprises slaughtered a total of 370 million white-feathered broilers, an increase of 16% over the same period last year, but profits at the slaughtering end fell sharply due to high seedling prices. 22 years of introduction is not smooth, the industry is expected to gradually usher in the business cycle of white chicken from Q4 this year, the company takes advantage of the opportunity to expand the scale of white chicken. At the end of breeding chickens, we will continue to expand the breeding scale of parents' generation of chickens, and the self-financing ratio of commercial chicks will reach the highest level of this year in the fourth quarter.

At the breeding end, the breeding scale of commercial broilers has always expanded steadily with the slaughtering end, and the proportion of self-supply of hairy chickens in the company exceeded 90% in the first half of the year. At the slaughtering end, relying on the operation level and profitability significantly superior to the industry, the company's slaughtering and processing business group continues to expand its production and marketing scale, with a total annual slaughtering capacity of more than 1.1 billion units.

The low price of pigs fluctuates, and the company strictly controls the scale. In the first half of 2023, the controlling and participating enterprises produced a total of 530000 live pigs, including 350000 fat pigs, 160000 piglets and 20,000 breeding pigs. On this basis, the company continues to optimize the internal breeding structure, gradually expand the advantage areas, advantage project capacity utilization and equity share, improve the assessment standards of each pig farm, promote the process performance management system, and decisively eliminate backward production capacity. Breeding performance has improved steadily.

Taking into account the lower-than-expected feed growth rate, the sharp rise in chicken seedling prices and the higher-than-expected decline in pig prices, we lowered the growth rate of feed sales in 23-25 years, raised chicken breeding costs in 23-24 years, and lowered pig prices in 23-25 years. In 23-25, the company is expected to achieve a net profit of 2.73,11.99 and 1.085 billion yuan (the original forecast is 9.20,17.51 and 1.36 billion yuan), which is-46.8%, 338.4% and-9.5% compared with the same period last year. Considering the loss of pig farming in 2023, we choose to value it on the basis of 2024 performance. From a sub-sector point of view, feed, trade-related businesses and pig plates are expected to make a total profit of 519 million yuan and 679 million of the poultry industry. According to the level of feed and pig farming and broiler comparable companies in the past 24 years, we gave the above two plates 8x and 11xPE respectively, with a target price of 12.65 yuan, maintaining a "buy" rating.

Risk hints: raw material risk, epidemic risk, more than expected decline in consumer demand, livestock and poultry price fluctuation risk