Overview of the event: On August 24, 2023, the company announced its 2023 annual report. 23H1 achieved revenue of 5.82 billion yuan, +8.9% year on year, net profit before adjustment +180 million yuan, and +113.2% year on year, turning loss into profit. After adjustment, net profit was reduced to 47 billion yuan, or -1.7% year on year. 23H1 achieved hedging profit of 7.1 billion yuan, and a loss of 6.3 billion yuan in the same period last year.

Before the fair value of biological assets was adjusted, a loss was turned into a profit. 23H1's profit before the fair value of biological assets was adjusted to 170 million yuan, an increase of 1.57 billion yuan over the same period last year, turning a loss into a profit. Affected by the decline in pig prices in the first half of the year, losses due to fair value reduced sales costs during harvesting of agricultural products were 360 million yuan, and losses due to changes in the fair value of biological assets reduced sales costs were 5.2 billion yuan. Overall, the impact of the 23H1 Biotech fair value adjustment on profit was a loss of 800 million yuan, so the adjusted net profit was -650 million yuan.

The number of pigs released has been growing steadily, and the supply of production capacity is abundant. 23H1 listed a total of 2,447 million pigs, +7.9% year on year; average sales price of 14.6 yuan/kg, +7.8% year on year; each listing weight was 99.6 yuan/kg, -1.8% year on year. The pig breeding business achieved sales revenue of 3.56 billion yuan, +14.3% year-on-year. We expect the full cost of the company's listing to be around 16.5 yuan/kg, with an average loss of about 188.3 yuan. The company has sufficient pig production capacity, which provides a stable guarantee for subsequent publication. The 2023H1 company can prosper and keep 326,000 reserve breeding pigs.

Sales of fresh pork have been growing steadily, and cooperation between upstream and downstream industrial chains has been strengthened. 23H1 sold 123,000 tons of fresh pork, +13.0% year-on-year; branded boxed pork sold 20.942 million boxes, or -23.1% year-on-year. Branded meat accounted for 26.2% of revenue, year-on-year -6.7 PCT, with an average daily sales of 115,000 boxes. The decline in branded boxed pork sales is mainly due to the resumption of meat consumption in the market after the epidemic was liberalized, replacing some online meat consumption, while the company's sales volume in the market was low. With the commissioning of two slaughter and processing bases in Jilin and Inner Mongolia, upstream and downstream cooperation in North China and Northeast China has further deepened. The commissioning of the Guangdong Division Center accelerated business expansion in South China, and the 23H1 South China Market achieved sales volume of 1,985,000 boxes of small-packaged pork.

Imported meat is profitable and the meat structure is optimized. 23H1 imported meat sold 36,000 tons, +25.8% year on year; achieved revenue of 1.27 billion yuan, +1.1% year on year, achieved profit of 235.19 million yuan, and profit per ton was 653.3 yuan/ton. As domestic food and beverage consumption picked up and demand for beef rebounded, the company accelerated beef inventory turnover, and imported beef sales increased year-on-year. As the price of imported frozen pork products continued to be inverted, the company took the initiative to reduce pork imports, fully implemented a locked-in order procurement of pork, and optimized the meat product structure.

Investment advice: We expect the company's net profit after fair value adjustment in 2023-2025 to be 566, 22.74, and 4.269 billion yuan respectively. The corresponding EPS is 0.12, 0.50, and 0.93 yuan, respectively, and the corresponding PE is 15, 4, and 2 times, respectively. The pig price market center is expected to rebound and rise in 2023. The company's breeding costs are leading the industry, and the volume released will increase steadily along with the release of production capacity. Future performance is expected to achieve a sharp rise in volume and price, and maintain the “recommended” rating.

Risk warning: The swine rebound fell short of expectations; the spread of the swine fever epidemic; fluctuations in raw material prices, etc.