There was a steady month-on-month increase in the release of pigs in December, and the year-on-year increase for the full year of '23. The company disclosed the December pig sales briefing. In December '23, the company sold 236,600 pigs, up 11.34% from the previous year, up 80.04%; achieved sales revenue of 374 million yuan, down 9.13% from the previous month, up 56.65% year on year; the average sales price of commercial pigs in December was 13.80 yuan/kg, down 1.36% from the previous month. It is estimated that the average weight of pigs released in December was 117.58 kg. The total sales volume of pigs for the full year of '23 was about 2.3027 million heads, up 91.13% year on year, in line with expectations.
Production capacity was released rapidly, and farming costs continued to decline. With the improvement of the company's breeding technology and the strengthening of management assessments, the cost of pig seedlings gradually declined, and the feed-to-meat ratio gradually improved. At the same time, thanks to the rapid release of sales volume, breeding costs continued to decline in 2023. The full cost fell below 17 yuan/kg in the third quarter. The company strives to reduce costs and increase efficiency from the three dimensions of “fewer dead pigs, more pigs, and faster growth”, and breeding costs are expected to drop further in the future.
The trend of industry capacity removal continues, and the company's fixed increase projects are progressing steadily. The industry has experienced an adjustment period of nearly three years. Currently, high-cost and highly leveraged production capacity in the industry is under heavy financial pressure. Combined with the disruptions caused by the winter swine disease epidemic, the trend of industry capacity reduction is expected to continue. According to Yongyi Consulting, the number of breeding sows in the country fell 0.7% month-on-month and about 10% year-on-year in December '23. Facing the bottom of the cycle, the company actively “opens up resources and saves money”, and plans to increase production capacity by no more than 1.6 billion yuan to help expand production capacity and optimize the capital structure. Related matters are progressing steadily.
Profit forecasting and investment advice: Maintain a “buy” rating. We expect the company's net profit to be -533/8.09/1,317 billion yuan in 2023-25, respectively, and corresponding EPS of -0.87, 1.32, and 2.15 yuan/share, respectively. Referring to the industry average valuation, considering the company's high growth rate, the company was given 17 times PE in 2024, corresponding to a reasonable value of 22.44 yuan/share, maintaining a “buy” rating.
Risk warning. There is a risk that pig prices will fluctuate, pig prices will fall beyond expectations, and the company's profit will fall short of expectations; the risk of the epidemic, the outbreak of animal diseases, and damage to pig breeding production; food safety and meat products business promotion will fall short of expectations; there is a risk of loss in the company's performance, and the breeding business will lose money due to low pig prices.