The performance is in line with the forecast. 23H1's income was 6.63 billion yuan, + 18% compared with the same period last year, and the net profit returned to its mother was 210 million yuan,-59.0% compared with the same period last year. The gross profit margin of 23H1 raw milk business was 28.3%, down 3.9PCT from the same period last year. Mainly due to the weak recovery of downstream demand, the oversupply of raw milk in the industry, the price of raw milk continues to decline, although the cost of superimposed feed decreased month-on-month, it is still at a high level. At the same time, due to the adjustment of cattle valuation, the fair value loss of biological assets increased to 530 million (22H1 is 340 million).

There is already support at the bottom of milk prices, and Q4 is expected to rise. The income of 23H1's raw milk business is 5.04 billion yuan, which is 3.8% higher than that of the same period last year. In terms of split weight price, the total sales volume is 1.233 million tons, + 8.6% compared with the same period last year, but the average selling price is 4.09 yuan / kg,-4.4% compared with the same period last year. The company's raw milk prices have fallen, but better than the industry, with the average price of 23H1 raw milk down about 6 per cent year-on-year, according to the Ministry of Agriculture. But we are not pessimistic about the future price of raw milk. Factors such as the rapid withdrawal of small and medium-sized pastures this year, the boost of downstream demand, the narrowing of the price gap at home and abroad, and the high level of feed are all supporting the price of raw milk at the bottom. According to the Ministry of Agriculture, the average price of raw milk in the main producing areas has stabilized at about 3.76 yuan / kg for about two months since mid-July. We believe that the Q4 industry is expected to improve this year, supply and demand will gradually match, and milk prices will gradually start an upward cycle.

Cost control ability is still excellent, the first echelon of the industry. The unit cost of 23H1 kg milk is 2.95 yuan, + 1.7% compared with the same period last year, which is better than that of the industry. Among them, the feed cost of kilogram milk is 2.39 yuan, + 5.8% compared with the same period last year, and the other cost is 0.56 yuan / kg,-12.5% compared with the same period last year. (1) Feed costs rose more than the same period last year, mainly because the commodity 22H2 rose sharply and the 22H1 base was relatively low, but at present, the feed cost of 23H1 kg milk has fallen from the 22H2 high, and the comprehensive company's price locking situation, 23 years of annual procurement has been basically completed, 23H2 will still maintain a month-on-month downward trend, and there has been a year-on-year decline in June. We estimate that the feed cost of 23H2 is about 2.2yuan / kg, and the annual feed cost is 2.3yuan / kg, which is about 1.3% lower than the same period last year. (2) other costs are significantly lower than the same period last year, mainly due to the company's subjective initiative to continuously optimize process management and control equipment / personnel and other controllable costs. Benefiting from the continued downward cost, we expect the gross margin of the raw milk business in the second half of the year to be higher than that in the first half of the year.

The new business model is gradually established, and the income is expected to increase. The new business segment of 23H1 recorded revenue of 1.589 billion yuan, + 105.3% compared with the same period last year. The new business includes the existing feed business as well as the new digital intelligence platform business. Food source science and technology, love raising cattle, modern grass industry, modern feed, Mengyuan seed industry are all developing rapidly. With the supply chain advantage of the leading industry, the company continues to empower business partners. With the development of new business, it can not only bring incremental income, but more importantly, it can promote the scale of raw milk procurement, further focus on procurement, reduce costs and increase efficiency.

Profit forecast and investment advice: based on the higher-than-expected development of new business, we raise this year's revenue forecast; based on the lower-than-expected raw milk business, we reduce this year's profit forecast, but we are not pessimistic about the future price of raw milk. We expect the company's revenue from 2023 to 2025 to be 143.5x160.4 / 17.71 billion yuan (the previous value is 134.4Compact 149.0 / 16.28 billion yuan), the net profit to return to the mother is 5.36pm 11.00 / 1.364 billion yuan (the previous value is 7.5pm 12.7 / 1.74 billion yuan), and the EPS for 2023-2025 is estimated to be 0.07max 0.140.17 yuan respectively (the previous value is 0.10amp 0.170.23 yuan). Taking into account the valuation of comparable companies and the prosperity of the industry is expected to rise, give modern animal husbandry 2024 9xPE (the previous 2023 11xPE), raise the target price to 1.33 Hong Kong dollars (1HKD=0.9361CNY, the previous target price 1.23 Hong Kong dollars), maintain the "better than the market" rating.

Risk tip: commodity prices are on the upside and downstream demand recovers less than expected.