Report summary
The cycle affected performance, and the loss was lower than the forecast median
In 2023, the company achieved operating income of 4.04 billion yuan, an increase of 1.83% over the previous year; realized net profit of 645 million yuan, after deducting non-net profit of 552 million yuan, which turned into a year-on-year loss, mainly affected by the overall slump in the pig market throughout the year. The annual loss was better than the median value of the performance forecast. In '23, the company calculated impairment provisions of 111 million yuan, of which expendable biological assets amounted to 45 million yuan, affecting profit realization. In '23, the company further expanded and improved its pig business. The annual number of pigs released by the company reached 2.6737 million heads, an increase of 74.74% over the previous year. Pig products achieved operating revenue of 3.463 billion yuan, an increase of 15.81% over the previous year, accounting for 85.9% of total revenue, accounting for an increase of 10.4 pcts over the previous year.
Expanding scale, reducing costs, and moving into a highly competitive global pig company, the company “based in Sichuan and going nationwide”, aspires to become a highly competitive pig breeding enterprise in the world. We believe that the achievement of the company's strategic goals fundamentally relies on the core technology and management advantages of its main pig breeding business, and has carried out in-depth cooperation with Pipestone and PIC to expand quantity and improve in terms of cost. 1) In terms of quantity, the company plans to release more than 10 million pigs in the future, and there is still a lot of room for improvement compared to the current release level. At the end of '23, the company announced a fixed increase plan to issue shares to specific targets, including the controlling shareholder Superstar Group, to raise no more than 1.75 billion yuan, of which 1.17 billion yuan will be used to build 9 pig breeding capacity. The implementation of future financing plans will further support the achievement of the company's strategic breeding goals. 2) In terms of cost, the company aims to keep farming costs no higher than 80% of the industry average. The company continues to polish management and reduce breeding costs: In '23, the average operating cost of the company's pig heads was 1309.0 yuan, a year-on-year decrease of 18.2%; of these, the average cost of feed and raw materials was 896.7 yuan, a decrease of 21.0%.
The pig cycle trend is improving, and advantageous growth companies are fully benefiting
The pressure level of the pig market may be in the past, and the cycle trend is improving. On the supply side, considering the transfer of early production capacity, it is expected that the peak of pig supply will pass, and industry supply may gradually shrink in the second quarter; on the demand side, considering recent CPI data, domestic consumption recovery is strong and resilient. In the future, as pig consumption seasonally warms up, it is expected to drive the pig market. In terms of production capacity, as of January '24, the number of sows that can be raised officially in the country was 40.67 million, which is 104.3% of normal holdings. This is 1.67 million heads higher than the normal maintenance target, and live is still to be destroyed. Major pig companies have accumulated financial pressure for a long period of time, and the reduction in overall industry production capacity is expected to further boost the long-term expectations of the pig market and drive the trend of the pig sector. Superstar Agriculture and Animal Husbandry is a growth target for the pig sector, which has the potential to expand in small numbers and has an advantage in terms of cost, and is expected to fully benefit from the recovery of the pig cycle.
Investment advice
Superstar Agriculture and Animal Husbandry is a leading industrial enterprise integrating modern intelligent pig breeding, slaughter and processing, feed, leather, etc. The company's core pig business has technical and management competitiveness, and is expected to expand in scale, have an advantage in cost, and achieve outstanding results. We expect the company's net profit to be 870 million yuan, 2.32 billion yuan, and 3.02 billion yuan respectively, and EPS will be 1.70 yuan, 4.55 yuan, and 5.92 yuan respectively, corresponding to PE of 23, 24, and 25, respectively, 21.4, 8.0, and 6.1 times, maintaining a “buy” rating.
Risk warning
The extent to which production capacity has been removed in the pig industry, pork consumption has fallen short of expectations, etc.