Maintain an “increase in holdings.” As pig prices continued to be sluggish in 2023, the company's pig business experienced losses, and performance was lower than previously hypothetical expectations. We lowered the company's 2023 EPS to -0.16 yuan (previous value was 0.43 yuan), and the decline in pig production capacity accelerated in 2023. We expect pig prices to rise significantly in 2024, so we raised the 2024 EPS to 0.90 yuan (previous value was 0.31 yuan), and the 2025 EPS is expected to be 1.10 yuan; at the same time, switching to 2024 valuation, the average industry valuation in 2024 is 13 Double PE, but due to the company's outstanding growth, we gave the company a certain premium of 15 times PE in 2024, increasing the target price to 13.57 yuan.
Event: The company released its three-quarter report for 2023. In the first three quarters of 2023, the company achieved revenue of 3.874 billion yuan, an increase of 19.82%, and net profit of 749 million yuan; of these, revenue for the third quarter alone was 1,359 million yuan, an increase of -21.88%, and net profit of 135 million yuan.
The performance fell short of previously hypothetical expectations, and the increase in the number of pigs led to an increase in revenue. The company sold 2.2 million pigs in the first three quarters, up 56.71% year on year, of which 780,000 heads were released in the third quarter, up 176% year on year; the company's mergers and acquisitions in 2022 further strengthened the company's core competitiveness in pig breeding, further extended the company's entire industry chain, and increased the scale of pig breeding and piglets. With the release of the company's production capacity, the company is expected to usher in a period of rapid development.
The inflection point of the pig cycle is expected to approach, and the company's costs are expected to decline further, and high-quality development is expected. Currently, the prices of piglets, fat pigs, and eliminated sows in the industry are all at the bottom, production capacity is expected to accelerate further, and the cycle inflection point is approaching. The company's breeding costs fell further by about 17.5 yuan/kg in the third quarter of 2023, which is expected to increase performance.
Risk warning: epidemic risk, product price fluctuations, raw material price fluctuations.