Incident: On March 20, 2024, the company released its 2023 annual report. The company achieved operating income of 12.417 billion yuan in 2023, +107.10%; realized net profit to mother of 1,746 billion yuan, +125.89% year over year; EPS was 3.34 yuan/share, +125.89% year over year.
Comment: In the downward cycle of the aquaculture industry, the real estate development business provides profit support to the company. In 2023, the company was mainly engaged in real estate development, breeding and feed business. Each revenue accounted for 69.12%, 23.25%, and 7.44% of total revenue, respectively. Among them, the breeding business is mainly pig breeding, along with a small amount of poultry farming business. Due to the weak overall market in the breeding industry in 2023, the company's profit mainly comes from the real estate development business. Currently, the real estate development part is the company's stock removal business, leaving only some products from the Shanhai Mansion project.
The number of listings continues to grow. The company released 1,845 million pigs in 2023, +45.92% year-on-year, of which 232,000 piglets were released, accounting for 12.57%. The company uses the Guangdong-Hong Kong-Macao Greater Bay Area as the core breeding and sales area, and has strong epidemic prevention and control capabilities. Last year, it was less affected by the non-plague epidemic. The company kept 112,200 sows at the end of 2023, providing a guarantee for listing in 2024. We believe that with the overall positive development of the industry, backup guarantees for breeding sows and a continuous increase in production volume will bring good revenue and profit growth to the company.
The feed business helps the farming side reduce costs and increase efficiency, and the company's management efficiency continues to improve. As the main cost of the breeding business, the company developed the feed business to achieve self-production and self-supply of feed, which helped reduce costs and increase efficiency in the pig breeding business. In line with the continuous improvement of the company's management level, at the end of 2023, when pig companies generally experienced no cost reduction but increase, the company still maintained a declining cost trend. In 2023, the company's annual breeding cost was about 16 yuan/kg, of which the average breeding cost for fattened pigs in December was about 14.7 yuan/kg, and this downward trend continued well until January and February 2024. Also, judging from the management expense ratio, the company's management expenses rate in 2023 was 2.07%, down 1.49pct from 2022, and management efficiency continued to improve.
Profit forecast and investment rating: We expect the company to achieve revenue of 91.50, 94.24, and 9.855 billion yuan respectively in 2024-2026, and realized net profit of 13.89, 16.15, and 1,470 billion yuan respectively. Corresponding PE for 2025-2026 is 5.71 and 6.27x, maintaining the “recommended” rating.
Risk warning: Production capacity release falls short of expected risk; risk of pig price fluctuations; risk of epidemic disease in the breeding industry.