Steady feed development contributes profits, waits for meat, poultry, and pig profits to recover, and maintains the “buy” rating. Hefeng Co., Ltd. released its 2023 three-quarter report. In the first three quarters of 2023, it achieved revenue of 26.893 billion yuan (yoy +14.33%) and net profit of 40 million yuan (yoy -88.69%). Q3 alone achieved revenue of 10.185 billion yuan (yoy +4.62%) and net profit of 65 million yuan (yoy -78.58%). In view of the limited room for pig prices to rise in Q4, we lowered the company's profit forecast for 2023, and the subsequent pig cycle is expected to gradually reverse. We raised our 2024-2025 profit forecast. The company's net profit for 2023-2025 is expected to be 1.88/8.29/10.97 (the original forecast was 3.02/6.94/8.84 respectively) billion yuan, corresponding to EPS of 0.20/0.90/1.19 yuan, respectively. The current stock price corresponding to PE is 43.3/9.8/7.4 times. The company's feed sales are growing steadily, awaiting profit recovery, and maintaining the “buy” rating.

The feed business is developing steadily, and rising quantitative profits contribute to profits

In the first three quarters, the company's feed export sales volume was 3.15 million tons (YOY +8%), and sales volume achieved steady growth. The export volume of feed for Q3 in Q3 was 1.17 million tons (yoy +1%), of which pig feed, poultry feed, and ruminant feed yoy were -5%, +15%, and -7% respectively. The slowdown in Q3 feed sales was mainly affected by the high base in the same period in 2022. The company's feed business focuses on large-scale direct sales to large customers. The net profit per ton in Q3 increased to 94 yuan (2023H1 was 91 yuan). We expect the company's net profit from the feed sector to reach 290 million yuan in the first three quarters. We expect the company's annual feed sales to increase 8% year-on-year. The overall feed business has maintained a steady development trend, and rising quantitative profits have contributed to the company's core profits.

The meat and poultry business is piling up, costs continue to decline, and profits continue to improve. In the first three quarters, companies controlled by the company slaughtered a total of 620 million broilers, of which 250 million were slaughtered in Q3 alone. We expect the company to slaughter more than 800 million chickens throughout the year. The company's poultry business covers parent breeding, commercial breeding and broiler slaughter, leading the industry in cost control throughout the process. Q4 The upward trend in white chicken prosperity compounded by the decline in the company's breeding costs, and the company's poultry business profits are expected to recover.

The pig business optimizes the internal structure, reduces costs and increases efficiency and high-quality development. We expect the company's pig business to lose 260 million yuan in net profit in the first three quarters. The total export sales of shareholding companies sold 780,000 pigs, of which 56/200,000 were fat pigs/piglets, respectively. In Q3, the cost of complete pig breeding for the company was reduced to 17.5 yuan/kg. The company's pig business focuses on reducing costs and increasing efficiency, optimizing the internal pig farm structure, and achieving high-quality development. We expect the company to release 1 million pigs throughout the year.

Risk warning: The decline in feed raw materials fell short of expectations, the increase in pigs and chickens fell short of expectations, and the epidemic was uncertain.