2023 results are in line with our expectations

Superstar Agriculture and Animal Husbandry announced its 2023 results: revenue in 2023 was +1.8% year-on-year to 4.04 billion yuan, and net profit to mother was -800 million yuan to -650 million yuan year-on-year. The pressure on performance was due to weak pig prices, and the company prepared depreciation of 111 million yuan for various assets at the end of the period. Among them, 1Q/2Q/3Q/4Q revenue was +21.7%/+36.6%/+4.2%/-28.7% to 8.9/10.8/10.3/1.03 billion yuan, and net profit to mother was +1.1/-1.9/-1.6/-550 million yuan year-on-year to -2.1/-1.4/0.1/-3 billion yuan. The results are within the forecast range and are in line with our expectations.

Development trends

The pig market has maintained rapid growth, and non-main industries such as leather and poultry farming have gradually shrunk. According to the company's announcement on March 22, 1) Pigs: In '23, pig revenue was +15.8% to 3.46 billion yuan, and pig sales were +74.7% YoY to 26.74 million heads. We estimate that the company's sales price fell to 14.4 yuan/kg year on year, and pigs contributed to revenue growth with volume supplements. 2) Leather: In '23, leather revenue was -71.7% to 80 million yuan, and sales volume was -76.3% year-on-year to 5.396 million square feet. Business contraction was due to continued sluggish market demand, and sales orders declined. 3) Poultry industry: Commercial chicken revenue in '23 was -77.4% to 0.3 billion yuan, sales volume -73.9% year-on-year to 788,000 birds. The company shut down the poultry business in '23. 4) Feed:

Feed revenue in '23 was -17.1% YoY to 460 million yuan, and sales volume was -17.9% YoY to 97,000 tons. Export sales declined year-on-year, as the company's feed was mainly used for personal use in farming in '23.

Pig breeding efficiency and cost levels are leading in the industry, and financial strength remains stable. 1) Pig breeding: By deepening PIC pig breeding cooperation, breeding management, and disease control, the company estimates that the full cost of the company in 23 years is 15.8-16.0 yuan/kg, PSY 27-28, and that cost control and production efficiency are at the leading level in the industry. 2) Financial strength: The company's financial situation remains stable. The company's balance ratio at the end of 2023 was 59.85%, +11ppt year over year, lower than the industry average.

Low-cost, stable capital support is growing rapidly, and there is a basis for profit release during the 2H24 pig price increase period.

1) Cost reduction and efficiency: The company focuses on the “breed+material+management+biosafety+environmental protection” five-star breeding system, using high-quality PIC and other breeding pigs. We determine or continue to contribute to increasing efficiency and cost reduction to help achieve the annual cost target of 14.6-14.8 yuan/kg. 2) Stable capital: The company plans to adopt an asset-light leasing model for expansion, and supporting financing for the company's reserve project. We believe that the company's financial strength is expected to be stable. 3) Release growth: First, the construction of the Dechang project was completed in '23, and we determine that breeding pigs may be put into production around 1Q24; second, the company has signed contracts with some leased pig farms, and we think they can be delivered one after another; the company is expected to sell 3.5 to 4 million heads in 24 years, and the 2H24 pig price upward cycle has a basis for profit release.

Profit forecasting and valuation

Considering the upward price boom, we adjusted our 2024/25 net profit forecast +33%/+6% to $4.4/97 billion. The current stock price corresponds to 42/19 times P/E in 2024/25, maintaining an outperforming industry rating. Considering the company's historical average market capitalization center, the target price was raised by 7.5% to 43 yuan, corresponding to 50/23 times P/E in 2024/25, corresponding to 18.6% upward space.

risks

The risk of animal diseases such as non-plague; the risk that the company will be listed below expectations; the risk of rising feed costs.