Core views:
The loss margin narrowed in the third quarter alone, which is generally in line with market expectations. The company released its quarterly report for '23. In the first three quarters, the company achieved operating income of 20.87 billion yuan, a year-on-year increase of 11.62%; net profit of -911 million yuan, a year-on-year decrease of 2760.8%; factors such as sluggish pig prices and calculated impairment in the first half of the year dragged down the company's performance; non-recurring net profit was -895 million yuan, and non-recurring losses mainly stemmed from asset disposal gains and losses. In the third quarter alone, the company's net profit was -247 million yuan, which narrowed compared to the second quarter, mainly due to factors such as the rebound in pig prices in the third quarter. The overall performance was in line with market expectations. As of the end of the third quarter, the company's balance ratio was 64.75%, up 2.68 percentage points from the end of the second quarter, but still at a low level in the industry.
The number of pigs released has continued to grow rapidly, and breeding costs are expected to continue to improve. In the first three quarters, the company sold a total of 2,6309 million pigs, an increase of 84.87% over the previous year; of these, the number of commercial pigs/piglets released was 2,385/2459 million, respectively. In the third quarter alone, the company sold about 972,000 pigs, an increase of 73.45% over the previous year. In terms of profit, it is estimated that the company's average farming profit for the 3rd quarter was about 260-280 yuan/head loss. As the company's breeding management efficiency gradually improves and the pig breeding structure continues to be optimized, breeding costs are expected to maintain a downward trend.
Sow production capacity remains stable, and pig breeding business continues to increase. In terms of sow production capacity, the company's overall stock of breeding sows remained stable. The balance of productive biological assets in the third quarter was 548 million yuan, with a month-on-month adjustment. The company's pig breeding system is gradually transitioning to the “new Dan line”, and pig breeding efficiency is expected to be further improved. In addition, the company continues to promote pig breeding business and define digital intelligent upgrading projects for the entire pig industry chain through simple procedures. Referring to the company's equity incentive plan, it is estimated that the company plans to publish about 3.5 million shares and 5 million shares for the year 23 and 24, respectively.
Profit forecasts and investment advice. We expect the company's EPS in 2023-25 to be -0.62, 0.47, and 0.92 yuan/share, respectively. Referring to comparable company valuations, the company was given 17 times PE for 24 years, corresponding to a reasonable value of about 7.99 yuan/share, maintaining a “buy” rating.
Risk warning. Risk of swine price fluctuations, raw material price risk, epidemic risk, loss of performance, etc.