Event: On October 31, the company released its quarterly report for '23. In the first three quarters of 23 years, the company achieved revenue/net profit of 208.70/ -911 billion yuan, a year-on-year difference of +11.62% /conversion loss, respectively. EPS was -0.66 yuan. In 23Q3, we achieved revenue/net profit of 73.90/-247 million yuan, a year-on-year difference of +1.07% /conversion loss, respectively.
Overall losses in the first three quarters of 23 years, the pig business was the main drag factor. The company's pig business achieved revenue of 417/1.56 billion yuan in the first three quarters/23Q3, +68.01%/+26.55% over the same period last year. The main reason for the increase in pig business revenue was the high growth in pig sales volume. Affected by the fact that the average price of pigs in 23Q3 was significantly lower than the same period last year, the company's overall profit turned to loss year on year, and the loss margin was roughly the same as in 23H1. The company's feed business is expected to remain profitable.
The number of pigs released in the first three quarters increased sharply year on year, and there is still room for costs to drop. In the first three quarters of 23, 23Q3, the company listed 263.1/972 million pigs, +84.9%/+73.5% over the same period; of these, 238.5/852,000 were fat pigs, +92.3%/+78.5%; the number of piglets was 24.6/120,000, +34.6%/44.4% over the same period, and the proportion of fat pigs released was 90.7%/87.7%. It is estimated that the company is likely to achieve the target of 3.5 million heads listed in '23, and there is still room for improvement in the number of pigs released in '24. In terms of cost, it is estimated that the company's current full cost is around 17 yuan/kg. In the future, as the capacity utilization rate of new pig farms around the world increases, there is still room for cost reduction.
The gross margin was dragged down by the pig sector, and the cost ratio declined slightly. The company's gross margin for the first three quarters of 23 quarters/23Q3 was 2.79%/3.88%, year-on-year -5.32pct/-7.24pct. The reason was that losses in the pig business dragged down the overall gross margin performance. The cost rate for the period was 6.84%/6.70%, -0.81pct/-1.09pct compared to -0.81 pct/-1.09 pct. This is due to effective control of various expenses and improved operating efficiency. Among them, the financial expense ratio was 1.14%/1.11%, +0.15pct/+0.18pct over the same period last year. The reason is the increase in interest expenses and the company's financial pressure is still high. The balance of cash and cash equivalents at the end of 23Q3 was $2,801 billion, up +83.50% from the end of 23H1, with sufficient cash reserves.
Investment advice: Based on the business situation in the first three quarters, we will adjust our profit forecast. Net profit from 23 to 25 is expected to be -11.33/13.29/1,381 billion yuan, a year-on-year loss/reverse loss/ +3.9%, corresponding to PE of -8.5/7.3/7.0 times. In the future, the number of pigs released by the company is expected to maintain high growth, and the feed business is expected to grow steadily. The company's main business has good growth in the medium to long term, and the synergy between various business sectors is strong, maintaining a “buy” rating.
Risk warning: pig release falls short of expectations; pressure on raw material costs; poor demand for pork; risk of epidemic diseases, etc.