Core views:
The 23-year results were in line with expectations, and low pig prices dragged down performance. The company announced its results forecast for the year 23. The net profit loss for the whole year was 49-61 million yuan, and the loss for the fourth quarter was 132-252 million yuan, mainly due to the sluggish pig market and preparations for the decline in the price of expendable biological assets. According to estimates, the pig breeding business lost about 150-170 million yuan in the fourth quarter.
The number of releases increased significantly year over year in '23, and production capacity continued to be released rapidly. The company sold 2.302,700 pigs in 23 years (including external sales and sales to internal slaughter companies), an increase of 91.13% over the previous year. 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 capital structure.
Farming technology and management efficiency have improved, and farming costs have dropped significantly in 23 years. 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 production volume, breeding costs continued to decline in 2023. According to estimates, the full cost of breeding in the first half of 23 was about 17.6 yuan/kg, and the full cost in the third quarter dropped to about 16.8 yuan/kg. The average full cost for 23 is expected to be around 17 yuan/kg for the whole year.
Profit forecasting and investment advice: Maintain a “buy” rating. We expect the company's net profit to be -5.80/8.07/1,314 billion yuan in 2023-25, respectively, and corresponding EPS of -0.94, 1.31, and 2.14 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 22.31 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.