Core views:
The number of pigs released in February remained the same year on year, and the average sales price increased month-on-month. The company released a monthly livestock and poultry sales report. In February 2024, the company sold 184,600 pigs (including 8,300 piglets), a decrease of 21.73% and a year-on-year increase of 0.05%; achieved sales revenue of 304 million yuan, a decrease of 14.88% over the previous year, an increase of 11.10% over the previous year; the average sales price of commercial pigs was 14.30 yuan/kg, up 3.55% from the previous month. Due to the slump in pig prices, the company's pig farming was still at a loss in February. With the improvement of the company's breeding technology, the strengthening of management assessments, and the rapid release of production volumes, breeding costs are expected to continue to decline.
At the bottom of the cycle, we actively open up resources and save money, and introduce central funds to enhance financial strength. 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. In February '24, the company announced the introduction of China Agricultural Industry Development Fund Co., Ltd. to purchase additional shares in Xianju Food and Pujiang Animal Husbandry for RMB 50 million, respectively, to enhance the operating scale and strength of its wholly-owned subsidiaries, of Xianju Food and Pujiang Animal Husbandry, with an investment period of 3 years.
The industry's production capacity gap is gradually showing, and we are optimistic about opportunities to reverse the pig cycle during the year. According to Mysteel data, the number of breeding sows in the country fell 0.28% month-on-month in February. The pig industry has continued to decline in sow storage since '23. In the current context of industry losses, the decline in storage is expected to continue, and a capacity gap may gradually appear. The 24-year pig cycle is expected to bottom out and rise. I am optimistic about opportunities for cycle reversal during the 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. Refer to the valuation situation of comparable companies in the industry, and considering the company's high growth rate, the company was given 17 times PE in 2024, maintain a reasonable value of 22.31 yuan/share, and maintain 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.