Core views

The company achieved revenue of 4,041 billion yuan (+1.83% YoY) and realized net profit to mother of 645 million yuan (-508.18% YoY) in 2023. By business segment, the pig business lost 510 million yuan (including 45 million yuan of impairment preparations), the poultry business lost 56 million yuan (including 29 million yuan of impairment preparations), and leather lost 80 million yuan (including 29 million yuan of impairment preparations).

During the reporting period, the company accrued depreciation provisions of 111 million yuan for various assets at the end of the period. The company released 2.67 million pigs in 2023 (+75% compared to the same period), and the total cost of breeding was about 15.90 yuan/kg. As production performance improved and feed costs decreased, the company plans to reduce the full cost to 14.76 yuan/kg in 2024. By the end of February 2024, the company was able to keep about 110,000 sows and 70,000 backup sows, and overall production capacity showed a steady growth trend. Based on the company's production capacity and production performance, the company is expected to release 4 million pigs in 2024. Considering factors such as the recovery in pig prices this year, the high increase in company listings, and cost improvements, it is expected that the company's revenue will increase rapidly in 2024, and the performance may turn a loss into a profit.

occurrences

The company disclosed its 2023 annual report, achieving revenue of 4,041 billion yuan, an increase of 1.83% over the previous year; net profit to mother of 645 million yuan, a year-on-year decrease of 508.18%. The company does not plan to distribute cash dividends or increase share capital from capital reserves in 2023.

Brief review

1. Revenue continued to grow, and poor pig prices led to loss of performance.

The company achieved revenue of 4,041 billion yuan (+1.83% YoY) and realized net profit to mother of 645 million yuan (-508.18% YoY) in 2023. By business segment, the pig business lost 510 million yuan (including 45 million yuan of impairment preparations), the poultry business lost 56 million yuan (including 29 million yuan of impairment preparations), and leather lost 80 million yuan (including 29 million yuan of impairment preparations).

During the reporting period, the company accrued depreciation provisions of 111 million yuan for various assets at the end of the period.

Expenses: The company's sales, management, R&D and financial expenses in 2023 were 0.39/2.17/0.25/107 million yuan respectively, with year-on-year changes of -12%/-5%/+66%/+30%, respectively. Among them, the increase in financial expenses was mainly due to the increase in interest expenses on bank loans during the reporting period.

2. Production costs continue to improve, and the breeding stock is basically stable.

In terms of listing: The company listed 2.67 million pigs in 2023 (+75% compared to the same period), of which commercial pigs accounted for about 70% and piglets sold about 30%.

In terms of farming performance: The company's 2023PSY maintained a high level of 27-28, the meat ratio decreased by 0.3 to 2.6, and the release rate increased by 3 pcts to 89%. Benefiting from the continuous improvement in production performance and the decline in cost amortization, the company's total pig breeding cost in 2023 was about 15.90 yuan/kg, and the production cost was 14.68 yuan/kg. Looking ahead to 2024, the company plans to reduce the total cost to 14.76 yuan/kg as production performance increases, feed costs decline, and unit amortization expenses are reduced.

By the end of February 2024, the company was able to keep about 110,000 sows and 70,000 backup sows, and overall production capacity showed a steady growth trend. Based on the company's production capacity and production performance, the company is expected to release 4 million pigs in 2024.

3. The balance ratio has increased slightly, and the financial situation is relatively stable.

As of the end of December 2023, the company's balance ratio was 59.85% (up 2.96pcts from the end of September), the monetary capital was 446 million yuan (a decrease of 191 million yuan from the end of September), and the company could use a bank credit of 600 million yuan. Considering that current pig prices are above the company's cash costs, the company's current financial situation is relatively stable. Looking ahead to the future market, the balance ratio and capital situation are expected to improve as pig prices gradually recover, company costs improve, and fixed growth progresses smoothly.

4. Profit forecast and rating: Considering the decline in the number of breeding sows in the previous period, the overall supply of pigs showed a declining trend this year. Combined with a recovery in consumption, pig prices may rebound to a certain extent over the same period last year; the company's listing has increased significantly, and costs are expected to gradually improve. It is expected that this year's revenue will grow rapidly, and at the same time turn a loss into a profit.

Revenue and profit are expected to maintain rapid growth next year as pig prices pick up further, the company's listing grows, and costs drop. Based on comprehensive considerations, the company is expected to achieve revenue of 68.95/102.81/13.605 billion yuan in 2024-2026, net profit to mother of 4.62/11.82/1,495 billion yuan, and EPS of 0.91/2.32/2.93 yuan/share respectively. The company is growing rapidly, leading the cost industry and continuing to decline, maintaining a “buy” rating.

Risk analysis

① Risk of price fluctuations of livestock and poultry products: The market prices of raw pigs and yellow feather chickens will fluctuate due to factors such as supply and demand in the market, which in turn affects the company's profitability. ② Risk of fluctuations in raw material prices: The main raw materials in the company's feed business are corn, soybean meal, etc., and their prices are easily affected by factors such as supply and demand, planting area, climate, industrial policy, international trade, etc., which in turn affects the company's performance. ③ Animal disease risk: The epidemic will cause the breeding efficiency of pigs and yellow feather chickens to decrease or even die. At the same time, it will affect consumers' consumer mentality, which will suppress market demand and reduce the sales price of the company's products, which in turn will affect the company's operating efficiency. ④ Other risks: the risk of environmental policy changes, industrial policy risks, etc.