Based on the goal of being the number one pig farmer in Hunan, the company gradually moved from a company+farmer model to a leasing and self-raising model, increasing expansion. The growth rate of production capacity has remained at the forefront of the industry. Meanwhile, through hardware upgrades, pig breeding, and management efficiency improvements, etc., its costs have been steadily reduced, and its state-owned capital background has also underpinned its financial stability. We expect the company to release 300/500/7 million pigs in 2023-2025. Based on pig cycle judgment, we expect the company's earnings per share in 2023-2025 to be -0.77/0.02/1.77 yuan. Using PE and PB relative valuation methods, comparable companies in 2023 Muyuan Share/Wenshi Share/New Hope/Tiankang Biotechnology/Tang Renshen/Shennong Group/Superstar Farming/Huatong Share/Jingji Zhinong/Dongrui Share/Aonong Biotechnology/COFCO Jiajakang, etc. Wind's unanimous expected valuation is 8.1 times PE/3 times PB, we gave the company 8.1 times PE/3 times PB in 2025, corresponding to the target price of 13-14 yuan. Furthermore, considering the possible cancellation of shares in Tianxin Seed Industry in 2023 for failed gambling, we believe that the company's valuation safety cushion was further highlighted, covering the “buy” rating for the first time.

Company profile: A leading state-owned pig breeding enterprise in Hunan, with a deep layout of the entire industry chain. Xinwufeng started with the live pig business in Hong Kong and Macao, and after 2008, the strategic focus was transferred to the domestic sales market. After many rounds of restructuring of the state-owned assets platform where the company is located, Tianxin Seed Industry was successfully acquired in 2022. Currently, the company has become the only listed company in the entire industry chain under the Hunan Provincial State-owned Assets Administration Commission with pigs as its core business. In 2022, the company released 1,826,800 pigs, an increase of 122.3% over the previous year. The production capacity and storage scale ranked among the highest in Hunan Province.

Industry: Pig prices fluctuated at the bottom, and expectations of a reversal are gradually becoming clear. Since this year, pig prices have fallen back to a loss range after experiencing a brief rebound in July. In the short term, we believe that 24H1 pig supply pressure will be difficult to relieve, and pig prices are fluctuating at the bottom. However, as pig prices continue to fall and swine diseases are repeated, the industry continues to lose blood. It is expected that the rate of removal of production capacity will accelerate, and the inflection point of the cycle will gradually approach. We expect pig prices to gradually rise in the second half of 2024, and the average price for the whole year may be higher than in 2023. We expect the average pig price from 2023 to 2025 to 15.5/16.5/20 yuan/kg.

From the perspective of industry competition, the current process of scaling up the industry is accelerating, and industry concentration is expected to increase further in the future. A total of 16 listed pig companies listed in 2022 accounted for 17.6% of the total number of listings in the country. In 2023-2024, this ratio is expected to rise to 21.5%/24.7%, and industry CR3 and CR5 are also expected to continue to rise. Every cycle is accompanied by the replacement of new and old production capacity. Only those with strong cost control and capital ability can get through to the bottom and grow rapidly.

Model upgrades, management optimization, and cost and profit improvements can be expected. The company's pig breeding model has completed the transformation from the traditional “company+farmer” model to a self-raising model based on rental pig farms. Currently, leased pig farms account for nearly 90% of production capacity. The company has increased the transformation of pig breeding lines to the French system, and has also achieved comprehensive upgrades in breeding equipment, biosafety prevention and control, and continuous optimization of management to improve human efficiency. As the company continues to reduce costs and increase efficiency and increase production capacity utilization, we expect the company's pig production costs to also drop back to 17 yuan/kg from 19 yuan/kg/+ at the beginning of the year, and subsequent cost reductions can still be expected.

Production capacity is advancing rapidly under the margin of high safety, and a high increase can be expected from 2023-2025. In 2023, due to the slump in the market, most listed companies slowed their growth, but companies bucked the trend and expanded. As of 2023H1, the company's stock of sows capable of breeding has reached 198,000 heads (with a production capacity of 258,900 sows). The company continues to promote the delivery of sows and fat pigs. It is estimated that the production capacity of sows will exceed 300,000 by the end of the year, steadily supporting the increase in the number of sows released in 2023-2025. However, relying on state-owned capital platforms, the company has sufficient cash reserves and low-cost credit lines, and has a high margin of capital safety.

Risk factors: risk of large price fluctuations of livestock and poultry products; risk of large fluctuations in raw material prices; risk of animal diseases; risk of leased farms; risk of food safety risk; risk of production capacity construction falling short of expectations; risk of cost control falling short of expectations; risk of environmental policy changes; risk of changes in environmental policy; industrial policy risk.

Investment suggestions: Based on the goal of being the number one pig breeding leader in Hunan, the company is gradually shifting from a company+farmer model to a leasing and self-raising model, increasing expansion. The growth rate of production capacity has stabilized at the forefront of the industry. Meanwhile, through hardware upgrades, pig breeding, and management efficiency improvements, etc., its costs have been steadily reduced, and its state-owned capital background has also underpinned its financial stability. We expect the company to release 300/500/7 million pigs in 2023-2025. Based on pig cycle judgment, we expect the company's earnings per share in 2023-2025 to be -0.77/0.02/1.77 yuan. Using PE and PB relative valuation methods, comparable companies in 2023 Muyuan Share/Wenshi Share/New Hope/Tiankang Biotechnology/Tang Renshen/Shennong Group/Superstar Farming/Huatong Share/Jingji Zhinong/Dongrui Share/Aonong Biotechnology/COFCO Jiajakang, etc. are unanimously expected to value 8.1 times PEP3 We gave the company 8.1 times PE/3 times PB in 2025, corresponding to the target price of 13-14 yuan. Furthermore, considering the possible cancellation of shares in Tianxin Seed Industry in 2023 for failed gambling, we believe that the company's valuation safety cushion was further highlighted, covering the “buy” rating for the first time.