The company lost 135 million yuan in net profit and loss in 2023Q3, benefiting from the recovery in pig prices and reducing losses month-on-month. The company's overall performance in the first three quarters of 2023 was under pressure. 2023Q1-Q3 achieved operating income of 3,874 billion yuan, a decrease of 19.82% over the same period last year, net profit of 749 million yuan, a decrease of 464.24% over the same period last year, of which asset impairment losses reached 114 million yuan. Looking at the third quarter alone, 2023Q3 achieved revenue of 1,359 million yuan, a year-on-year decrease of 21.88%, and net profit loss of 135 million yuan, a year-on-year decrease of 250.88%, and reduced losses over the previous month, including asset impairment losses of 19 million yuan. Judging from the sales performance of business segments, 2023Q3 achieved 796,000 pigs, an increase of 22% over the previous year, and 14610.5 tons of slaughtered meat, an increase of 3% over the previous year. Various business segments maintained steady growth.

After completing the acquisition of Tianxin Seed Industry, farming strength was consolidated, and state-owned enterprise reform was revitalized. The actual controller of the company is the Hunan Provincial State-owned Assets Administration Commission. The business covers the entire pig industry chain such as feed, raw material trade, breeding, and chilled meat processing. The company acquired 100% of Tianxin Seeds and other assets in 2022. In 2022, the company (including Tianxin Seed) released a total of 183,000 pigs, an increase of 122.32% over the previous year. Tianxin Breeding is a high-quality pig breeding and piglet sales enterprise in Hunan Province. In 2020-2022, it released 160/42/760,000 pigs, respectively, and is in a period of rapid production capacity expansion. As of July 31, 2022, Tianxin Breeding has a total stock of 87,000 sows, including 46,600 basic pigs and 39,900 reserve sows, further enhancing the company's breeding strength.

There is plenty of room for cost improvement, and it may continue to grow rapidly when it is released. In terms of costs, the company is currently at the midstream level of the industry, and there is plenty of room for future cost improvements. On the one hand, the company plans to continuously optimize the efficiency of pig breeding groups through the introduction of French pigs. On the other hand, it is expected that as the company's production capacity utilization rate increases, headquarters expenses will be further amortized. In terms of listing, the company adopted an expansion model mainly based on leasing, self-construction and transformation, and continued to vigorously promote the layout of breeding projects. In 2022, the company added 68,400 heads of sows and a production capacity of more than 920,000 pigs. Among them, Xinwufeng (excluding Tianxin Breeding) delivered 9 sow farms and 54,000 new sow stocks; delivered 28 fattened pig farms, adding more than 700,000 heads of fat pigs per year; Tianxin delivered 4 sow farms, adding 14,400 new sow stocks; There are 13 pig farms, with an additional annual production capacity of 22 fat pigs More than 10,000 heads. Furthermore, considering that Tianxin Seed Industry is in the performance betting stage from 2022-2024, the development momentum may be sufficient, and there is plenty of room for future poor recovery.

Risk warning: An uncontrollable outbreak occurred during farming, and the sharp rise in food prices increased feed costs.

Investment advice: Stay “buying.” The company's net profit for 23-25 is estimated to be -8.65/-3.96/2,022 billion yuan (originally estimated at -706/15.15/1,365 billion yuan), corresponding to EPS of -0.80/-0.37/1.87 yuan, corresponding to the current stock price PE of -13/-28/5 X.