Introduction to this report:
The company's performance for the third quarter of 2023 is lower than previously assumed expectations. Future farming costs are expected to decline steadily, and the reversal of the cycle will directly drive up the company's performance. Furthermore, the company's large-scale seed industry strategic layout is expected to exceed expectations.
Key points of investment:
Maintain an “increase in holdings.” As pig prices continued to be low in 2023, the company's pig business continued to lose money, and performance was lower than previously assumed expectations. We lowered the 2023-2024 EPS forecast to -0.1 yuan and 0.2 yuan (previous values were 0.41 yuan, 0.49 yuan), and the 2025 EPS forecast was 0.31 yuan. Based on distributed valuation, the company's target price was lowered to 9.92 yuan, maintaining the “increase in holdings” rating.
Incident: The company announced its report for the third quarter of 2023. In the first three quarters of 2023, the company achieved revenue of 23.931 billion yuan, an increase of 8.31% over the previous year, and realized net profit of -908 million yuan, increasing losses; of these, revenue for the third quarter was -5.02%, and performance turned into loss.
Performance was lower than previously hypothetical expectations. The pig business continued to lose money, and the feed business was relatively profitable; the company's pig business continued to lose money. The total number of pigs released in 2023Q3 was 1,384,400, an increase of 35.2%, an increase of 2.8% over the previous month. Among them, the holding subsidiaries listed 874,900 heads and participating subsidiaries listed 5055 million heads, mainly due to the continued slump in pig prices, but the company's costs gradually improved. The company's feed business profit improved markedly. In the first three quarters of 2023, the company's feed sales volume was about 4.3 million tons, of which about 3.4 million tons of pig feed, and pig feed increased month-on-month.
The commercialization of genetically-modified genes has begun, and the company's large-scale seed industry layout is expected to be improved at an accelerated pace; on October 17, the Seed Industry Department of the Ministry of Agriculture announced 37 genetically modified corn and 14 genetically modified soybean varieties, and genetically modified soybean varieties. The company has a clear first-mover advantage in the genetically modified field. The proportion of neutral traits in corn and soybean varieties reached 60% and 36% respectively. At the same time, the company is expected to cover soybeans and corn, domestic and overseas dual-line business. Relying on the advantages of traits, it is expected that the company's large-scale seed industry strategy will gradually improve.
Risk warning: epidemic risk, product price fluctuations, raw material price fluctuations.