[Tabl Case E_Su:mm Gonga Sry] recently released the 2023 Interim Report. In the first half of the year, we achieved revenue of 2,071 billion yuan, an increase of 7.21%; net profit of 237 million yuan, a decrease of 27.55%; net profit after deducting net income of 217 million yuan, a decrease of 20.23%. Basic earnings per share - 0.3 yuan. In the second quarter alone, we achieved revenue of 982 million yuan, an increase of 13.86%; net return profit - 138 million yuan, same period last year - 036 million yuan; asset impairment loss of 29.9568 million yuan, net profit after deduction - 108 million yuan.

The reviews are as follows:

The feed business is growing significantly and is expected to double in the next three years. In the first half of the year, the company's feed business tactics focused on empty markets and key markets, actively developed processing capacity and production, and strengthened marketing. It achieved obvious results in terms of sales volume and product structure. The export sales volume of 32,700 tons of feed was 32,700 tons, an increase of 22.62%; among them, sales of high-end materials such as animal feed and sow feed accounted for about 45%, a steady increase of 26.62%; achieved revenue of 1,277 billion yuan, an increase of 26.62%; gross profit margin was 10.02%, up 1.08 percentage points from the same period last year. Feed is the company's future development focus, and it is planned to double production capacity and production and sales targets over the next three years.

The aquaculture business focuses on standardizing management, and the results in reducing costs are obvious. In the first half of the year, the breeding business achieved sales of 544,500 heads of pigs (including 257,300 commercial pigs, 275,100 piglets, 12,200 heads of breeding pigs), a year-on-year decrease of 18.68%; it achieved revenue of 626 million yuan, a year-on-year decrease of 18.46%. The decline in sales volume is mainly due to the company's flexible response to the sluggish situation in the industry and actively reducing requirements for an increase in aquaculture business volume. The company's strategy focuses on cost reduction, attaches great importance to the standardization of production management systems and biological security, and focuses on promoting the “Meat Ratio Reduction Campaign” and the “Clear Blue Action”. Production management performance and cost control have improved markedly. According to estimates, in the 2nd quarter alone, the production cost of fattening pigs decreased by 0.6-0.8 yuan/kg compared to the 1st quarter. Currently, “Operation Clear Blue” is basically nearing its end. As the results are further demonstrated, the overall production cost of the farming business is expected to drop further. In terms of production capacity, in the first half of the year, the total book value of fixed assets and projects under construction was 3.54 billion yuan, which was basically the same as at the end of the first quarter; cash paid for the purchase and construction of fixed assets, intangible assets, and other long-term assets was 146 million yuan, a decrease of about 30% over the same period last year. It mainly involved supporting fattening production capacity and the construction of boar breeding farms. Up to now, the company has 100,000 production beds and an annual production capacity of 2.5 million piglets; 70,000 sows are kept, of which 60,000 can grow.

Profit forecasts and investment recommendations. Since late July 2023, pig prices have risen rapidly. The national average pig price has risen from 14 yuan/kg to 17-18 yuan/kg, a range increase of about 20%. Pig prices are expected to remain stable in the fourth quarter against the backdrop of a double increase in supply and demand, or at the current price level. Compared to other regions, pig prices are higher in Guangdong Province. In line with the company's cost reduction trend, it is expected that in the second half of the year, the company's farming business is expected to turn a flat loss or be slightly profitable. In the long run, as a pioneer in animal feed education and a leading pig breeding enterprise in China, the company's advantages in feed nutrition and formulation technology and breeding are quite obvious, and its market share is expected to increase steadily. The majority shareholders have strong financial strength, and as the only listing platform, the company is expected to receive strong support from the majority shareholders to further expand and strengthen in the future. The company's net profit for 23/24/25 is estimated to be 0.8/167/491 million yuan, maintaining a “buy” rating.

Risk warning: Pig price trends fall short of expectations, and majority shareholders' support falls short of expectations