Event: On October 31, the company released its 2023 three-quarter report. In the first three quarters, the company achieved revenue/net profit of 52.99/-86 billion yuan, a year-on-year difference of -0.24% per conversion loss, and EPS of -0.20 yuan. Combined with 23Q3, we achieved revenue/net profit of 19.63/-58 billion yuan, a year-on-year difference of -1.90% /conversion loss, respectively.
The eel business needs to be expanded, and equity incentive expenses and accrued impairment losses are hampering performance. In terms of main business, the pace of eels leaving the pond slowed in the first three quarters due to factors such as climate change and farming density. As of October 27, the distribution price of 2.5P Japanese eels has risen from a low level of 76 to 80 yuan/kg in June to 88 to 90 yuan/kg. American eels have increased quite a bit. The price of eels has clearly picked up, and it is expected that the company will speed up the pace of fishing in 24Q4. At the end of 23Q3, the company had an inventory of 2,799 billion yuan, +93.92% over the same period and +7.26% over the previous year. The supply is fully prepared. The company's feed business is expected to maintain steady growth, but the prices of key raw materials such as fishmeal are still high, and the cost pressure is high.
In terms of expenses and impairment charges, due to the 22-year employee stock ownership plan, the company accrued a one-time equity incentive fee of RMB 40.78 million. In the first three quarters, the company and its subsidiaries accrued credit impairment losses of $20.81 million. Excluding one-time expenses and impairment charges, the company lost less in the first three quarters.
The gross margin declined markedly, and the expense ratio for the period increased year over year. The company's gross margin for the first three quarters of 23 quarters/23Q3 was 8.25%/8.43%, year-on-year -4.10pct/-3.67pct. The reason is that the production volume of eels with higher gross margins is low, various costs cannot be effectively shared, and at the same time, the procurement cost of feed ingredients has increased. The fee rate for the first three quarters/23Q3 period was 8.30%/9.55%, +2.36pct/+3.27pct over the previous year. Among them, the management fee rate was 3.21%/4.21%, +0.95pct/+1.63pct over the same period last year. The reason is that the one-time equity incentive fee is higher.
The financial expense ratio was 2.10%/2.38%, +1.09pct/+1.01pct over the same period last year. This is due to increased borrowing due to increased business scale and increased net interest expenses.
Investment advice: Based on the business situation in the first three quarters, we have lowered our profit forecast. Net profit from 2023 to 2025 is expected to be 0.16/4.89/725 million yuan, -87.8%/+2970.5%/+48.4% over the same period last year, corresponding to PE of 434.3/14.1/9.5 times. The company's feed business has maintained steady growth. In the future, as the pace of fishing accelerates and downstream demand recovers, the aquaculture and food business is expected to break out of the trough. A recovery in fundamentals can be expected, maintaining a “buy” rating.
Risk warning: Feed business expansion falls short of expectations, insufficient fishing for eel fry, cost pressure, risk of disease, etc.