What happened: the company released its third quarter report for 2023. 23Q1-3 achieved operating income of 929 million yuan, + 12.25% year-on-year; net profit attributable to shareholders of listed companies was 179 million yuan, + 39.78%; of which, operating income of 311 million yuan in the third quarter was-0.92%; net profit attributed to shareholders of listed companies was 63 million yuan, + 22.82% year-on-year. 23Q1-3 achieved a net profit of 0.52 yuan per share. The performance was slightly lower than previously expected (we expect the company's 23Q3 to achieve a return net profit of 70 million yuan in the three quarterly results forecast).

Poultry vaccine sales grew steadily, but 23Q3's overall revenue growth rate was slightly lower than expected, related to a slight decline in pig vaccine sales.

The business of pig vaccine, poultry vaccine, antibody and chemical medicine of 23Q1-3 company realized business income of 3.31,2.96 and 269 million yuan respectively, which was + 8.89%, + 10.03% and + 19.69% respectively compared with the same period last year. However, the company's single Q3 revenue has declined, which is related to the slight decline in pig seedling sales revenue from the same period last year (- 3.94%): it is mainly due to the downturn in downstream farming, the decline in the prices of fat pigs and sows, and the impact on the immunity and medication enthusiasm of pig farmers. The increase in meat and poultry stocks drove the growth of poultry vaccine sales. Q3 alone earned 102 million yuan in poultry vaccine and antibody business, an increase of 9.56 percent over the same period last year. It is worth noting that the company's "large product" marketing strategy has achieved remarkable results: the company's core single product circle-mycoplasma vaccine 2023Q1-3 has achieved rapid revenue growth compared with the same period last year. The business layout of pet sector continues to advance, and the revenue is growing rapidly:

During the reporting period, the company completed the equity acquisition of Luoyang Leju and Hip Pop (Shanghai). The sales revenue of 23Q1-3 functional health products for pets was 6.4003 million yuan, a substantial increase of 322% over the same period last year.

The profit growth rate of 23Q3 is higher than that of income, which is mainly related to the optimization of expense management and the decrease of expense rate. During the period of 23Q3, the cost control was good, and the efficiency effect of fee reduction was obvious: the sales expense rate was 27.23%, down 1.70pcts from the same period last year; and the management expense rate was 13.18%, down 0.74pcts from the same period last year. Therefore, the profit growth rate is significantly higher than the income growth rate, the 23Q3 homing net profit increased by 22.82% year-on-year, and the net sales interest rate increased by 19.29%, an increase of 3.20pcts over the same period last year.

It is expected that the research and development of a number of blockbuster self-research / cooperative products are progressing smoothly, and the reserve products are expected to be harvested. The live swine pseudorabies vaccine independently developed by the company is about to enter the new veterinary drug registration review test, and is expected to become the first approved swine pseudorabies epidemic live vaccine. Both round branch bivalent inactivated vaccine (subunit) and highly pathogenic avian influenza (H5+H7) trivalent subunit vaccine have entered the stage of registration of new veterinary drugs. At the same time, the African classical swine fever vaccine developed by the company in cooperation with the Blue Research Institute is expected to be the first to be approved: by the middle of 23 years, the company is improving the relevant application materials according to the first expert review of emergency evaluation and has been submitted for review again. It is expected that it will be approved to be listed in 24 years, becoming another major product of the company. Pet sector reserve items are also expected to gradually land: including cat triple inactivated vaccine (has submitted emergency evaluation), dog live vaccine (through the preliminary examination of new veterinary drug registration technology) and other products are expected to help companies improve the pet product matrix.

Profit forecast and investment analysis opinions: optimistic about the company's outstanding R & D technology advantages, the continuous promotion of new products and the improvement of sales penetration of the "major customer" policy are expected to drive the company's performance growth. Taking into account the relatively depressed pig farming industry in the lower reaches of 23Q3, which leads to a decline in the growth rate of sales income of animal protection enterprises, we slightly downgrade the annual growth assumption of sales revenue of pig vaccines, corresponding to a slight reduction in the profit forecast for 2023. It is estimated that the company's operating income in 23-25 years will be 13.80 pound 17.75 billion yuan, and the return net profit will be 2.57 billion yuan, 3.61 billion yuan (the original forecast 23-year net profit is 274 million yuan), and the corresponding EPS will be 1.37 yuan per share respectively. Taking into account the downstream downturn in the context of corporate revenue growth declined as a common feature of the industry, and the company's "large product" sales growth is still fast, maintain the "overweight" rating.

Risk hints: the risk that new product research and development is not as expected; the risk of intensified market competition; the operational risks that may be caused by policies, etc.