Incidents:
On March 22, 2024, Superstar Agriculture and Animal Husbandry released its 2023 annual report: in 2023, the company achieved revenue of 4,041 billion yuan, an increase of 1.83% over the previous year; realized net profit to mother - 645 million yuan, and business loss.
Investment highlights:
The industry is sluggish, and the main business is losing money. In 2023, the company achieved revenue of 4,041 billion yuan, an increase of 1.83% over the previous year; realized net profit to mother - 645 million yuan, and business loss. The number of pigs released by the company reached 2.6737 million throughout the year, an increase of 74.74% over the previous year. However, with the recovery of pig production capacity, the number of domestic pigs released continued to grow, causing pig prices to continue to fall, causing the company to lose net profit. Furthermore, due to the low overall price, the company prepared impairment of 111 million yuan for various assets at the end of the period.
The pig sector is developing rapidly, and multiple parties are coordinating to reduce costs and increase efficiency. The company has begun to improve the quality of operations from various aspects to keep up with the pace of the market. In terms of pig production, we actively organize relevant production and technical personnel to study all aspects of the breeding process, scientifically plan animal breeding strategies, adopt various cost reduction and efficiency measures to continuously control breeding costs; take animal disease prevention and control as a top priority, strengthen the integrated prevention and control system of self-raised and foster farms, strengthen employee training on prevention measures, and strictly implement prevention and control measures to ensure production and operation safety; manage funds scientifically and rationally, and advance project construction progress in an orderly manner on the premise of ensuring cash flow safety, and using various methods (self-construction and leasing) to increase the efficiency of asset use. In terms of sales, we thoroughly study household needs, promptly pay attention to market changes, and flexibly adjust sales strategies in line with breeding plans to maximize efficiency.
Profit forecasting and investment rating The company's pig business is developing rapidly, and the cost is significant. With the subsequent recovery in pig prices, the profit level of the company's main business is expected to continue to rise. We predict that in 2024-2026, the company's net profit to mother will be 541/18.72/807 million yuan, corresponding to PE 34.19/9.88/22.91 times, respectively, maintaining a “buy” rating.
Risks indicate the risk of epidemics in livestock; the risk of fluctuations in raw material prices; the risk of inventory impairment; the risk of the company's performance expectations not meeting expectations; the risk of liquidity in the secondary market; the risk of pig prices falling short of expectations, etc.