A small but beautiful local pig company in Yunnan. Shennong Group was founded in 1999. Adhering to the purpose of “helping farmers raise good pigs and let consumers eat good meat”, it has now developed into an agricultural industrialized enterprise integrating feed processing and sales, pig breeding and sales, slaughter, and pork food sales in Yunnan Province. The scale of pigs released is growing rapidly: 1,520,400 pigs were released in 2023; the 2018-2023 CAGR reached 54.83%.
Pig breeding: Focus on targets that have both market growth rate, cost advantage and financial strength. Although 2024H1 definitely did not significantly reduce production capacity in the early period (cumulative reduction of 2.14% for 2023H1), breeding efficiency is still high; however, the number of piglets born declined to a certain extent at the beginning of 2023Q3, and it is expected that 2024H1 pigs will hardly increase significantly over the same period last year. It is worth noting that secondary fattening has increased markedly recently, and the release of part of the supply has been delayed. The inflection point in pig prices may arrive early; considering that feed prices have already declined, future farming profits may improve definitively. Grasp the “profit improvement” expectations determined by the industry at the present time: the trend increase in pig prices will lead to some farmers turning losses into profits.
If you pay attention to breeding companies that have the advantage of growing volume and cost, Shennong Group has these two major characteristics.
A perfect talent training and service system is the foundation. The company has nurtured many experienced breeding talents and established a corresponding incentive mechanism. At the same time, the company has further improved the farmers' service and management system: upgraded the “company+family farm” farming model, cooperated deeply with cooperating farmers, and established a complete farmers' service and benefit-sharing system.
Breaking through the shackles of high-priced raw materials and showing significant advantages in farming cost performance is the company's core focus. The average breeding cost for Shennong in 2023 is about 15 yuan/kg, and the full cost is about 16.2 yuan/kg. It is significantly ahead of the industry average, and also ranks among the top listed pig companies. Although the company, whose production capacity is mainly located in Yunnan, does not have the natural advantage of purchasing raw materials, the company is based on efficient “upstream” pig breeding, supported by modern, high-standard biosafety prevention and control, and has achieved overtaking in curves. ① Pig breeding: Benefiting from long-term cooperation with PIC, the company has self-developed and improved L1050 and L1054 ancestral and parent breeding pigs, which have obvious advantages in performance and production efficiency: PSY reached 27 for the whole of 2023. ② High standards of biosafety prevention and control, implementation of the concept of healthy breeding: The company has implemented high standards in pig house design, biosafety prevention, control and management, etc., and has significantly improved breeding efficiency indicators (survival rate, meat ratio), etc.
The expansion of production capacity is progressing steadily, and the increase in sales volume is determined. The company's aquaculture production capacity is mainly located in Yunnan Province, and gradually began to expand outside the province. The scale of pig breeding capacity is entering a period of rapid growth: by the end of February 2024, the company was able to breed 85,000 sows, with a breeding capacity of more than 1.5 million heads. The expansion of production capacity “protects” the steady increase in production volume: the company is expected to release 152/250/3.5 million pigs in 2023-2025, with a CAGR of 52%, which is at the leading level in the industry.
Steady management and sufficient capital support the company to achieve growth across cycles. The company's balance ratio is significantly lower than the industry average (2023Q 322.27%), and short-term debt repayment pressure is light. These are all guarantees for the company to grow beyond the bottom of the cycle.
Covered for the first time, a “gain” rating was given. As a local pig company in Yunnan, the company relied on efficient pig breeding and biosafety prevention and control management to achieve excellent breeding cost performance, and is optimistic that the company will continue to achieve cost optimization and growth in the future in the context of steady operation and capacity expansion. We expect the company to achieve operating income of 37.02/57.26/8.186 billion yuan in 2023-2025, +12.0%/+54.7%/+43.0% year-on-year; achieve net profit of 3.60/2.68/1,054 billion yuan. Covered for the first time, a “gain” rating was given.
Risk warning: The process of capacity expansion falls short of expectations; rising costs due to declining farming efficiency; fluctuating raw material prices; risk of abnormal trading fluctuations, etc.