Released in January-January, striving for cost excellence
Similar to other pig companies that have released February release data, the number of pigs released by Shennong Group in February declined year-on-month due to the Spring Festival effect. Confidence in the company's expansion is clear, and the number of listings in January-January increased 40% year over year. Policy guidance+cycle rules. We expect the inflection point of the cycle to appear in 24Q2. We maintain our profit forecast. The company's net profit for 2023/24/25 is estimated to be -3.57/3.55/ 1.6 billion yuan, respectively, and 7.98/8.66/11.45 yuan for BVPS, respectively. We refer to the average valuation value of a comparable company in 2024 of 3.21x PB. Considering the company's excellent management of pig raising costs, we gave the company 4.28xPb in 2024, corresponding to a target price of 37.1 yuan, maintaining a “buy” rating.
Prices of pigs released from January to February were reduced. The loss in February alone was about 0.25 to 0.26 million yuan. The company released 131,000 pigs in February, a year-on-year decrease of 6.8%, or the impact of the high Spring Festival base in the same period last year. Of these, 129,000 are fat pigs, accounting for 98%. Influenced by the large supply of pigs in Yunnan, the average sales price of the company's fat pigs was 13.04 yuan/kg, all down from the same period last month. The estimated weight of a fat pig is about 123 kilograms.
Confidence in the company's capacity expansion is clear. A total of 326,000 pigs were released in January-January, an increase of 40% over the previous year.
Based on the customs records of February 23, 2024, we estimate the company's January-January farming loss of 0.58 to 62 million yuan, of which the loss for February alone was about 0.25 to 26 million yuan.
Policy guidance+cycle rules, cycle inflection point may appear in 24Q2
The “Implementation Plan for the Regulation and Control of Pig Production Capacity (2024 Revision)” lowered the normal number of breeding sows nationwide to 39 million, and lowered the range of reasonable fluctuations. We believe that the overall revision of the plan points to the continued reduction of pig production capacity. Considering the long period of cumulative losses in domestic pig farming, the industry's cash flow may have deteriorated significantly, and combined with policy guidance and cycle rules, we expect that capacity reduction may still be the main theme for the next 1 to 2 quarters. The inflection point at the bottom of the cycle may occur around 24Q2.
Steady expansion, outstanding cost advantage of the company
Benefiting from the reduction in the company's pig breeding costs and feed costs, the company's breeding costs have declined steadily since the second half of last year. Shennong's total breeding cost in January was about 14.6 yuan/kg, leading the industry. According to the company's announcement, the company plans to outsource about 300,000 piglets to help achieve the target of 2.5 million piglets in 2024. As of January 2024, the company has outsourced 180,000 piglets. The company expects 24,000 sow farms to be delivered in the first half of 2024. At that time, the company will be able to breed 130,000 heads, or support the target of releasing 3.5 million heads by 2025. Along with the company's pig farm delivery and personnel efficiency improvements, it is expected that the company's subsequent costs will still have room to expand.
Risk warning: the number of pigs released falls short of expectations, pig prices fall short of expectations, repeated non-plague outbreaks, large-scale animal disease outbreaks, the pace of expansion does not match market demand, etc.