Incident: The company released the 2023 semi-annual report: the company's revenue was 2,818 million yuan, +3.05%; net profit at the same time was 35 million yuan, +33.83%; net profit after deducting the net profit after deduction was -42 million yuan, +29.31%.
Q2 The performance turned a loss into a profit, and gross margin improved markedly. The main reason for the improvement in 2023H1's performance is that the company continues to promote a series of cost reduction and efficiency measures such as raw material substitution in formulations and product structure optimization and adjustment, which effectively offset some of the adverse effects brought about by the continued high and sharp rise in the price of fishmeal, an upstream raw material, and a short-term decline in downstream aquaculture. H1 Company's comprehensive gross profit margin was 10.84%, +2.08 pct; the cost ratio for the period was 9.55%, year-on-year -0.96 pct, mainly due to a marked decrease in the company's sales and management expenses. However, due to the nature of the industry and sales model, H1 calculated a credit impairment loss of 96 million yuan, +61 million yuan over the previous year, which had a great impact on the company's net profit. Looking at a single quarter, the Q2 company's revenue was 1,861 million yuan, +6.20% year on year; net profit after deduction was 0.14 billion yuan, +220.99%; net profit after deduction was 111 million yuan, +182.06%; the company's comprehensive gross profit margin was 11.44%, +3.02 pct year on year; and the cost ratio for the period was 8.55%, -0.86pct year on year.
H1 feed revenue and profit both rose, and sales volume declined slightly. 23H1 Affected by adverse factors such as the economic situation, weather, and diseases, aquaculture declined in the short term, and the company's feed sales declined slightly year-on-year. 23H1's feed sales achieved revenue of 2,668 billion yuan, +4.36% year on year, accounting for 94.68% of total revenue; gross margin was 9.75%, +1.70 pct year on year. Under the premise of safeguarding the market share of major products, the company continuously adjusts and optimizes the product structure to increase the sales market strength and share of high value-added products, thereby increasing the overall gross profit margin. In terms of feed ingredients, the company accurately determined the fluctuating trend of fishmeal prices and prepared in advance, laying the foundation for the company's peak season feed production and cost control in the third quarter.
At the same time, the company continues to step up research and development efforts and increase the application of alternative technologies for major raw materials such as fishmeal. Results are gradually showing, which is conducive to subsequent increases in feed profitability.
The industrial layout has been optimized, and aquafeed production capacity continues to expand. The company implements a production base layout strategy of “being close to the market and radiating the periphery”. On the one hand, it makes full use of the production capacity of the existing production base to consolidate regional advantages; on the other hand, it continuously accelerates the construction of fund-raising projects. Previously, the expansion project with an annual output of 150,000 tons of aquatic products and feed in Taishan, Zhongshan was put into operation in July '22, and the Hainan fishery compound feed project with an annual output of 120,000 tons was put into operation in March '23. Currently, the overall operation is in a climbing period. In addition, an aquaculture compound feed project with an annual output of 100,000 tons in Anhui is under construction and is expected to be put into operation in August '25. In 2020, the company's aquatic feed design capacity was 1992,000 tons, with an actual production capacity of 1.195 million tons. If all of the fund-raising projects are put into operation and put into production, the company will add 370,000 tons/year in actual production capacity, which is expected to help solve the problems of insufficient production capacity, long sales radius, and high transportation costs of the company's products in East China, Hainan and the Pearl River Delta region, further improving the supply capacity of the company's products, thereby increasing market share.
Investment suggestions: The company is deeply involved in the field of specialty aquatic feed, and is also engaged in aquatic animal protection products, aquatic products, etc., and has a deep technical heritage, rich product range and perfect marketing network. The company continues to promote the expansion of feed production capacity and actively lays out an emerging fishery product preparation industry with high-end aquatic protein as the core. The company's performance can be expected to grow. We expect EPS to be 0.29 yuan and 0.4 yuan respectively in 2023-2024, corresponding to 31 times and 23 times PE. It will be covered for the first time, and given a “recommended” rating.
Risk warning: risk of raw material price fluctuations; risk of downstream product price fluctuations; credit risk related to accounts receivable; risk of natural disasters, etc.