Incident: COFCO Jiajiakang announced its 2023 annual report. 1H23 achieved revenue of 5.82 billion yuan, +8.9% year on year, net profit before adjustment +180 million yuan, +113.2% year on year, turning loss into profit. After adjustment, net profit of return to income was 170 million yuan, or -1.7% year on year. 1H23 achieved hedging profit of 7.1 billion yuan and loss of 6.3 billion yuan in the same period last year.

The number of pigs released has been growing steadily, and there is room for optimizing breeding costs. The 1H23 pig breeding business achieved sales revenue of 3.56 billion yuan, +14.3% over the same period last year. In the first half of the year, the company released a total of 2,447 million pigs, +7.9% year on year; average sales price was 14.6 yuan/kg, +7.8% year on year.

The company has sufficient pig production capacity, providing a stable guarantee for subsequent publication. 1H23, the company was able to prosper and keep 326,000 reserve breeding pigs. Currently, the complete cost of the company's publication is about 16.5 yuan/kg, and the best internal regional cost is about 15 yuan/kg. In the future, with the improvement of breeding, epidemic prevention, and internal consistency, it is expected that the complete cost of the company's farming will be less than 16 yuan/kg.

Sales of fresh pork are growing steadily, and branded pork is under pressure in the short term. 1H23 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 recovery of meat consumption in the market after the epidemic was liberalized. Some online meat consumption returned to the market, while the company's sales layout in the market was small. In the future, in terms of branded meat, the company will strengthen brand building, enhance marketing capabilities, and expand specialty stores. The aquaculture business is under pressure in the short term, and there is still room for costs to decline.

Beef supports the profitability of the import business, and the lockdown operation stabilizes profitability. 1H23 imported meat sold 36,000 tons, +25.8% year on year; achieved revenue of 1.27 billion yuan, +1.1% year on year, import business 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's 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 locked orders to purchase pork, and stabilized the profitability of the import business.

Profit forecast and investment advice: Based on recent pig price trends, we adjusted the 2H23 pig price estimate and the profit level of the company's pig breeding business. We expect the company's revenue for 2023/24/25 to be 143/163/18.1 billion yuan, net profit to parent to be 53/10.2/14.01 billion yuan respectively, and corresponding PE to 16X/8X/6X. According to the industry valuation situation, the company was given 10 times PE in 2024, corresponding to a target price of HK$2.39 (1RMB = 1.08 HKD), maintaining the “superior to market” rating.

Risk warning: Pig prices fluctuate, pig disease outbreaks are repeated, and feed prices fluctuate.