Introduction to this report:

Prosperity expectations for the meat and poultry industry are improving, ancestral chicken breeding is limited, supply expectations are declining in 2024, and demand is improving; the company's feed business is developing steadily, raw material prices are falling, and Q4 feed tonnage is expected to improve.

Key points of investment:

Maintain the “Overweight” rating. Maintain the 2023-2025 EPS forecast of 0.26/0.80/0.83 yuan, maintain the target price forecast of 15.23 yuan, and maintain the “increase in holdings” rating.

The three-quarter report was in line with expectations. In the first three quarters, the company achieved operating income of 26.893 billion yuan, an increase of 14.33% over the previous year, and realized net profit of 0.4 billion yuan, a year-on-year decrease of 88.69%. In the third quarter alone, the company achieved revenue of 10.185 billion yuan, +4.62% year-on-year, and net profit of 65 million yuan, -78.58% year-on-year. The three-quarter report is generally in line with expectations.

A reversal in expectations for the poultry industry is imminent. Both supply and demand are driving the upward trend of the cycle. At the supply level, the introduction of ancestral chickens was limited in 2022. It has now been transmitted until 2023, when the ancestral inventory declined, the price of parent-substitute chicken seedlings rose, and the price of commercial chicken seedlings and chicken meat is expected to rise step by step in 2024. Looking at the demand level, the recovery in per capita demand and food consumption is expected to drive up poultry consumption.

The feed business is developing steadily, and Q4 tonnage profit is expected to improve. The profitability of the pig breeding industry was weak in the first three quarters of 2023. It is estimated that the Q3 self-breeding model will lose 109 yuan/head, the outsourced piglet fattening model will lose 185 yuan/head, and the industry's enthusiasm for corrective measures is weak. Industry demand is weak, and the company's pig feed growth rate is stable. We expect the company's feed sales to increase by about 10% in 2023; in terms of cost, the spot price of corn and soybean meal has declined since the beginning of September, the cost of Q4 raw materials is expected to continue to be under pressure, the pressure on the company's feed costs has decreased, and Q4 feed profit is expected to improve.

Risk warning: risk of large fluctuations in feed raw materials, risk of animal disease, risk of fluctuations in livestock prices, etc.