Incident: On March 23, 2024, the company released its 2023 annual report. The company achieved operating income of 4,041 billion yuan in 2023, +1.83% year over year; realized net profit of 645 million yuan, -508.18% year over year; and EPS-1.28 yuan/share, -508.13% year over year.
Comment: The company is expected to achieve profitable growth in 2024. In 2023, the company was mainly engaged in breeding business, feed business and leather business. Each revenue accounted for 86.35%, 11.32%, and 2.12% of total revenue, respectively. In addition to the feed business maintaining a relatively stable gross margin to provide profit support for the company, losses of about 570 million yuan and 80 million yuan respectively were caused by the slump in the farming and leather business industries as a whole. At the same time, the company accrued 110 million yuan in asset impairment losses for biological assets, fixed assets, etc., which also had a certain impact on annual profits. It is expected that in 2024, with the steady recovery of the aquaculture industry, the company's Dechang project will be introduced and put into operation. The results of the company's cost reduction and efficiency and scale expansion will gradually become apparent, and it is expected that the performance will turn a loss into a profit.
Focus on the pig business, and production capacity continues to increase. In 2023, the company shut down the commercial chicken business and focused on pig breeding. The pig business accounted for 85.71% of total revenue. The company released 2.6737 million pigs in 2023, +74.74% over the same period. The number of pigs released increased rapidly. The scale effect of listing is conducive to reducing the cost sharing of breeding costs and promoting a further reduction in the total cost of breeding. In 2024, the company plans to reduce the full cost of fat pigs to 7.38 yuan/kg, achieve production capacity of 24-280,000 sows by the end of the year, and continue to expand production volume.
The business was expanded in an asset-light model, and the financial situation is relatively stable. Currently, the company's pig farming is mainly based on a close “company+farmer” breeding model. This asset-light breeding model can effectively reduce capital investment pressure on the breeding side. By the end of 2023, the company's balance ratio was 59.86%, which is at a good level in the industry. In 2024, the company will actively promote the implementation of targeted growth plans and continue to increase production capacity by leasing sow farms. The company will maintain a steady and rapid pace of development and expansion.
Profit forecast and investment rating: We expect the company to achieve revenue of 78.43 billion, 122.15, and 13.192 billion yuan respectively in 2024-2026, and realized net profit of 7.56 billion yuan, 16.46 billion yuan, and 1,805 billion yuan respectively. The corresponding PE for 2025-2026 is 11.25 and 10.26x, 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.