Huatong Co., Ltd. is a leading livestock and poultry slaughter enterprise in Zhejiang Province. It is one of the few domestic livestock and poultry processing enterprises with a complete pig industry chain. The company grew from 4.715 billion yuan in 2017 to 9.452 billion yuan in 2022, with a CAGR of 14.92%. In the first three quarters of 2023, the company achieved revenue of 6.164 billion yuan, -3.98% year-on-year, and net profit to mother of 358 million yuan. In response to the long loss period of this round of “pig cycle”, the extent of degeneration of capable sows is still low, but the current supply situation where the supply of pigs is too high has not fundamentally changed, and the state of loss and tight cash flow in the industry has not changed. We determine that breeding sows may remain high.
Livestock and poultry farming business: Emerging breeding dark horses, pig farming is developing rapidly. The company mainly uses the building pig farming model in Zhejiang Province. The 2021/2022/2023H1 livestock and poultry farming business revenue was 1.07/4.08/223 million yuan, respectively, +411.92%/+358.10%/-20.90%. The number of pigs released in 2021/2022/2023 was 13.70/120.48/2.3027 million heads, respectively. It is expected to release 4 million heads in 2024, with good growth. In 2022, Huatong Co., Ltd. began to switch sows from American and Canadian to high-performance pigs such as Danish and French breeds. The full cost continues to decline. The full cost is 18 yuan/kg in 2022, 17.80 yuan/kg in 2023q1, and 16.5 yuan/kg in 2023q3, and the cost continues to be optimized.
Slaughter and meat processing business: Production capacity within and outside the province is expanding, and slaughter is steady and steady. Starting with the slaughter and meat processing business, the company occupies a leading position in slaughter in Zhejiang. The slaughter and meat processing business is the company's traditional dominant business, with a year-round revenue contribution rate of over 90%. The 2021/2022/2023H1 slaughter and meat processing business revenue was 79.48/86.51/3.78 billion yuan respectively, accounting for 95.28%/91.52%/91.79% of the slaughter and meat processing business. The company currently has 24 pig slaughter enterprises, 19 of which are located in Zhejiang Province and 5 are located outside the province (Jiangxi), with an annual slaughter capacity of 14 million heads. In terms of meat products, the company relies on the product advantages of Huatong Jinhua ham to explore the meat products business downstream of the slaughter business industry chain and expand its brand influence.
Profit prediction and investment rating: Production capacity in the pig industry is being eliminated at an accelerated pace. We believe that the company's pig business has good growth potential. As breeding costs are continuously optimized, subsequent profitability continues to rise. We expect the company's revenue in 2023-2025 to be 101.8/143.1/19.169 billion yuan, respectively, and net profit to mother of -5.9/2.83/1,957 billion yuan, respectively. The 2024-2025 corresponding PE is 38.17 and 5.53 times, respectively, covered for the first time, giving it a “buy” rating.
Risk warning: food safety risk, animal disease risk, raw material price fluctuation risk, pig price fluctuation risk, policy risk.