2023Q3 lost 86 million yuan and made a profit of 1.4 million yuan from the normal pig farm.

The company released its quarterly report for 2023: revenue from January to September was 807 million yuan, down 0.02% from the same period last year. The net profit from January to September was-416 million yuan, compared with a profit of 4.95 million yuan in the same period last year. From a quarterly point of view, the net profit of Q1, Q2 and Q3 is-190 million yuan,-140 million yuan and-86 million yuan respectively. Q3 continued to lose money because of a total loss of 83 million yuan in construction and vacant capacity, a loss of 4 million yuan in slaughterhouses and a profit of 1.4 million yuan in normal pig farms.

The target of listing this year and next year is expected to be successfully completed. The complete cost of Q3 pigs will drop from January to September 2023. The company's pig business income will be 769 million yuan, an increase of 1.2% over the same period last year. The number of pigs produced will be 504200, an increase of 38.5% over the same period last year. It is expected to successfully achieve the target of 650000 pigs for the whole year. At the end of September 2023, the company had a stock of more than 40,000 sows, 12000 reserve sows and about 20 MSY, laying a solid foundation for the target of 90-1 million in 2024. At the end of September, the company's asset-liability ratio was 47.8%, which was at a low level in the industry.

On a quarterly basis, the pig business income of 2023Q1, Q2 and Q3 companies was 310 million yuan, 220 million yuan and 240 million yuan respectively, an increase of 46.4%, 0.5% and-27.5% over the same period last year. The number of live pigs was 209900, 156500 and 137900, up 66.9%, 33.8% and 13.8% over the same period last year. The quarterly decline in pig production is mainly due to the early elimination of backward production capacity, and the Q4 production volume is expected to rise to more than 150000. The average selling price of commercial pigs from July to September is 17.45 yuan / kg, 19.71 yuan / kg and 18.23 yuan / kg respectively. We estimate that the complete cost of pigs in the normal pig farm of Q3 company has been reduced to about 17.8 yuan / kg, which is 0.5 yuan / kg lower than that of Q3. With the continuous improvement of capacity utilization and epidemic prevention and control ability, the company's complete pig cost is expected to fall further.

The price of eliminated sows in some areas is close to the lowest point in 2021, and the elimination of pig production capacity is expected to accelerate the substantial increase in pig breeding efficiency, resulting in weak pig prices so far this year. We infer that pig prices will remain low, and capacity elimination is expected to accelerate. I) the recent pig epidemic continues to ferment, and the price of eliminating sows has reached a new low this year. Last week, the price of eliminated sows in Henan, Hebei, Liaoning and Heilongjiang was even close to the lowest price in September 2021. Ii) at the end of the first and second seasons of 2023, the stock of fertile sows in the country increased by 2.9% and 0.4% respectively compared with the same period last year. With the continuous improvement of breeding efficiency this year, the number of live pigs in 1H2024 is expected to increase by about 10% compared with the same period last year. The price of live pigs is likely to be even lower than that in the first half of 2023. The average price of 1H2023 pigs is 14.7 yuan / kg, and the lowest price of pigs is 13.7 yuan / kg. We estimate that the average price of 1H2024 pigs is expected to fall below 12 or 13 yuan / kg. Iii) since September, piglet farming has been losing money, and the price of 15 kg piglets in large-scale farms has fallen to about 200 yuan per piglet, gradually approaching the lowest price of 155yuan per piglet in September 2021.

Investment suggestion

The company is not only an important high-quality pig supplier to Guangdong-Hong Kong-Macau Greater Bay Area in China, but also a leading enterprise supplying live pigs to Hong Kong in the mainland. We estimate that the company will produce 650000, 1 million and 1.6 million live pigs from 2023 to 2025, with an operating income of 1.284 billion yuan, 2.423 billion yuan and 3.657 billion yuan, an increase of 5.6%, 88.7% and 50.9% over the same period last year, and the corresponding net profit is-303 million yuan, 251 million yuan and 571 million yuan. The net profit before returning to the mother is 161 million yuan in 2023, 265 million yuan in 2024 and 921 million yuan in 2025. The reason for this adjustment is that the expected pig price and management expenses in 23-25 have been revised to maintain the "buy" rating.

Risk hint

An epidemic; pig prices rose later than expected.