3Q23 performance is lower than we expected.

Hefeng Co., Ltd. announced 1-3Q23 results: 1-3Q23 income 26.893 billion yuan, + 14.3% year-on-year; return to the mother net profit of 40 million yuan,-88.7%. From a quarterly point of view, the company's 1Q/2Q/3Q23 realized revenue of 78.4 million yuan, 19.6%, 4.6% and 0.19 million, respectively, compared with the same period last year. The company's net profit was + 150 million yuan /-125.6%, 78.6%, respectively. Due to the depressed meat, poultry and pig market, the 3Q23 performance was lower than we expected.

Trend of development

Revenue increased slightly, the contribution of feed business increased, and the business of meat, poultry and pigs came under pressure. 3Q23's income is 10.18 billion yuan, + 4.6% compared with the same period last year. We judge that the company's feed business contributes to revenue growth, partially offsetting the impact of low livestock and poultry prices. Specifically, 1) Feed business: based on the increase in livestock and poultry production, while the company attaches importance to the expansion of feed business customers, we judge the month-on-month growth of feed sales. 2) Meat and poultry business:

The company takes hairy chicken and chicken as its main products, and the price of 3Q23 products is under pressure to affect its income. We estimate that the slaughtering volume of 3Q23 is more than 15% month-on-month; according to Boya, the price of 3Q23 white-feathered chicken / chicken is-9% compared with the same period last year, ranging from 9% to 8.5%, 14.6 yuan / kg. 3) Pig business: the company's pig sales are flat month on month, and we judge that the year-on-year decline in pig prices affects revenue. According to Yongyi, the price of 3Q23 commercial pigs is-29% to 15.9 yuan / kg compared with the same period last year.

During the period, the expense rate is relatively stable, and the gross profit margin is under pressure due to the depressed prices of livestock and poultry. 1) the gross profit margin of 3Q23 is 5.2%, year-on-year / month-on-month-1.7/+0.3ppt. According to the company's announcement on October 28, the gross profit margin of 3Q23's meat and poultry business decreased compared with the same period last year, while the pig business lost money. 2) the period expense rate of 3Q23 company is 4.1%, year-on-year + 0.2ppt, in which, the sales expense rate is from + 0.05ppt to 1.9%; the management expense rate (including R & D) is from + 0.1ppt to 1.7%; and the financial expense rate is 0.5%, which is the same as the same period last year. Under the comprehensive influence, the 3Q23 homing net interest rate is 0.6%, year-on-year-2.5ppt, month-on-month + 1.1ppt.

The company continues to promote the integrated development of the industrial chain, focusing on feed, meat and poultry breeding and slaughtering, and the steady development of pigs.

1) Feed business, with a slight correction in raw material costs this year, we expect the company's tonnage to increase slightly; the downstream livestock and poultry production will increase in 23 years, and the company assesses front-line managers based on "sales volume, net profit and receivables". We judge or help sales increase by 15%. 2) in the meat and poultry business, the company promotes the matching degree between the breeding end and the slaughtering end, and the superimposed company has better efficiency and higher production capacity at the slaughtering end, and we judge that the profit level is expected to be improved.

Profit forecast and valuation

Considering the low demeanor of livestock and poultry prices, we downgrade the 24-year net profit forecast of 2023 Universe by 47% 35% to RMB 3.3 billion. The current stock price corresponds to 14 times Pmax E of 24-year 24-year 2023 Candle, maintaining an industry rating that outperforms.

Taking into account the adjustment of earnings forecasts and the current market expectations of a reversal in the pig cycle, the target price is lowered by 11% to 9.3 yuan, corresponding to 2023 Universe, which is 17 times the price of Pmax E in 24 years, which has 7% upward space compared with the current stock price.

Risk

Raw material price fluctuation; breeding boom is low; epidemic risk.