Introduction to this report:

The company issued an announcement on the introduction of strategic investors and the transfer of some shares in the white feather poultry business, focusing on the main business, strengthening management, reducing the balance ratio, and continuously improving the main business's pig breeding capacity. It is expected that it will enter high-quality and rapid development in the future.

Key points of investment:

Maintain an increase in holdings rating. Maintain the company's 2023/2024/2025 EPS of -0.04/0.85/1.37 yuan, maintain the target price at 12.31 yuan, and maintain the increase rating.

Incident: On December 15, the company issued an announcement on the introduction of strategic investors and the transfer of some shares in the white feather meat and poultry business. China Animal Husbandry Group plans to obtain 51% of the shares of the company's poultry industry chain operator, that is, the subsidiary Sino-Singapore Foods, through cash. After this transaction, China Animal Husbandry Group became the controlling shareholder of Sino-Singapore Food, with a total transaction price of 2,704.5 billion yuan.

Focus on the main business, strengthen management, and reduce the balance ratio; in this equity transfer, the price of 20% of Sino-Singapore Food's shares was 1,059 billion yuan, the price of the 29% shares transferred by Beijing New Hope was 1,536 billion yuan, and Shandong Liuhe transferred 2% for 105.9 billion yuan. The predecessor of Sino-Singapore Food was New Hope's Poultry Industry BU. The purpose of this equity transfer is to 1) focus on the main business and expand and strengthen the pig feed business; 2) consolidate management, improve overall management precision, professionalism, reduce costs and increase efficiency; 3) join the industry's excellent industrial resources to jointly help the development of the white feather poultry business; 4) reduce financial risks in the face of cyclical risks, and is expected to reduce the balance ratio by 4-5% after completion.

Seek high-quality development and continuously improve pig breeding capacity. This equity transfer is also aimed at enabling the company to concentrate resources on its main business and further improve quality and reduce costs in the pig business. Currently, the company's breeding efficiency has improved markedly, costs have improved rapidly, and PSY has increased to about 24,25 heads. The survival rate has increased from 87% at the beginning of the year to 91% now, and the full cost of selling fat pigs in November has dropped from 17.4 yuan/kg in the first quarter to about 15.6 yuan/kg. The company's costs are expected to continue to improve in 2024.

Risk warning: swine disease risk, product price fluctuations, raw material price fluctuations.