Incident: The company released its three-quarter report for 2023. The company's total operating income for the first three quarters was 5.299 billion yuan, down 0.24% from the previous year, and net profit was 86.094 million yuan, which changed from profit to loss over the previous year. Looking at quarterly data, total operating income for the third quarter was 1,963 billion yuan, down 1.9% year on year, while net profit for the third quarter was 57.8933 million yuan, changing from profit to loss.
Revenue continued to grow, and profit declined due to cyclical fluctuations. The changes in the company's performance in the first three quarters of 2023 are mainly due to ① the continued pressure on the feed industry, large fluctuations in feed raw material prices, losses in the downstream aquaculture industry, and increased pressure on the operating costs and capital turnover of feed companies; ② the special aquaculture business was affected by the cold spring in the first quarter of 2023 and the extreme heat in summer, as well as the large number of seedlings invested in the past two years, and the construction of breeding bases in the past two years was not fully supported. Currently, the overall farming density is high, objectively affecting the overall pace of fish production; ③ the increase in equity incentive expenses of 457.63 million yuan in the first three quarters.
Eel farming is growing rapidly, improving the profit structure. The specialty aquaculture business was affected by cold spring in the first quarter of 2023 and extreme heat in summer, as well as the large number of seedlings invested in the past two years and the construction of breeding bases that were not fully supported. Currently, the overall farming density is high, which objectively affects the overall pace of fish production. Currently, specialty water and livestock and poultry feed are still the main sources of the company's profit, but with the expansion of the company's eel production scale, the share of gross profit has increased rapidly, or it has grown into the main source of the company's profit elasticity. Eel prices continued to rise in 2023, and may still be in a price increase cycle in 24, and the company's profit elasticity in eel farming may gradually be released.
The incentive to increase holdings+employee stock ownership plans shows confidence. From February 1, 2023 to July 31, 2023, Mr. Chen Qingtang, the controlling shareholder and actual controller of the company, increased his holdings by more than RMB 50 million. <公 2023 年员工持股计划（草案）>Furthermore, on August 2, 2023, the company deliberated and passed the “Proposal on and its Summary”, and the shareholding plan was purchased within 6 months after review and approval by the company's shareholders' meeting. The shareholding plan is to obtain and hold company shares through special financial products. The total capital limit for special financial products is 330 million yuan.
Profit forecasts and investment advice. The company's 2023-2025 EPS is expected to be 0.24 yuan, 0.92 yuan, and 1.51 yuan, respectively, and the corresponding dynamic PE is 72 times, 18 times, and 11 times, respectively. Considering that the company is rapidly starting up in eels and improving its profit structure, and is in a stage of rapid growth, the company was given 25 times PE in 2024, corresponding to the target price of 23 yuan, coverage for the first time, and a “buy” rating.
Risk warning: Aquaculture growth rate or failure to meet expectations, risk of raw material price fluctuations, downstream demand or failure to meet expectations.