Event: The company publishes its 2023 annual report. The company's revenue in '23 was 35.97 billion yuan, +9.63% year on year; net profit to mother was -457 million yuan, from profit to loss year over year (514 million yuan for the same period last year); net profit after deduction was -503 million yuan, year on year from profit to loss (520 million yuan for the same period last year). Looking at a single quarter, 23Q4's revenue was 9.078 billion yuan, -2.29% year on year; net profit to mother was 497 million yuan, year-on-year from profit to loss (164 million yuan in the same period last year); net profit after deduction was -481 million yuan, year-on-year from profit to loss (166 million yuan in the same period last year).

The company's revenue grew steadily in '23 & the performance turned into a year-on-year loss. The main reasons for the decline in the company's performance in 2023 were the low prosperity of the downstream aquaculture industry, the recovery in consumer demand falling short of expectations, the company's investment losses, and accrued asset impairment losses. The company's comprehensive gross profit margin in '23 was 3.98%, -2.04pct year on year; the cost ratio for the period was 4.42%, +0.12pct year on year. Looking at a single quarter, the 23Q4 company's comprehensive gross profit margin was 0.81%, -5.28pct year on year; the cost ratio for the period was +4.26%, +0.32pct year on year.

Feed sales increased by nearly 8% year on year, and poultry growth was outstanding. In '23, the company's feed business revenue was 16.470 billion yuan, +5.29%; gross profit margin was 8.42%, +0.62 pct; export feed sales reached 4.3052 million tons, +7.88% year on year. Among them, sales of pig, poultry and ruminants were 1,5565 million tons, 1.8495 million tons, and 742,000 tons, respectively, of -0.1%, +22.7%, and +0.9%, respectively. The company's feed sales have continued to grow, and the growth rate is superior to the industry level. The downstream aquaculture industry lost money across the board in '23. Coupled with fluctuating prices of raw materials, feed profit margins were under pressure, and inefficient production capacity continued to clear up.

The company reduces costs and increases efficiency in various aspects such as technology, procurement, and operation. It is expected that in the future, it will gradually take advantage of its comparative cost advantage, and its market share may further increase. In 2024, the company plans to increase feed sales by more than 10%.

Meat and poultry production capacity is expanding steadily, and the food business continues to grow. The company's poultry industry revenue in '23 was 11.212 billion yuan, +20.77% year on year; gross profit margin was 0.62%, -3.66 pct year on year. 1) Breeding side: The company continues to expand the scale of chicken breeding for parents, and the new factory strives to quickly reach full production; the scale of commercial broiler breeding has always followed the steady expansion of the slaughter side; the company's self-supply ratio of chicken during the slaughter process exceeds 90%. In terms of farming performance, the company's feed-to-meat ratio dropped to 1.55 in '23, and the European index rose to 415. 2) Slaughter side: The total annual slaughter production capacity of the company's shareholding in '23 was over 1.1 billion; the total slaughter capacity of white feather broilers exceeded 1.1 billion; total production and sales split was 2.12 million tons, +14% over the same period last year. In a context where downstream consumer demand for white chicken fell short of expectations in '23 and the slaughter process in the industry fell into losses, the company's slaughter company maintained a high inventory turnover rate and accelerated the development of broiler portionment sales channels through a “multi-brand strategy”. The company aims to slaughter more than 860 million white chickens in '24. 3) Food business: The new project rapidly expanded the basic production and sales scale. In '23, the company controlled shares to produce and sell a total of 32,000 tons of prepared food products, +19% over the same period last year.

Optimize the pig breeding structure and strive to steadily cross the industry trough. The company's pig industry revenue in '23 was 2,576 billion yuan, +25.19% year over year; gross profit margin -9.23%, -13.15 pct year on year. The pig farming industry was generally sluggish in '23, and production capacity removal and consumption recovery fell short of expectations. The company's pig business strictly controls the overall breeding scale, optimizes internal breeding structure, strengthens pig farm management, and promotes process performance management systems. In '23, the company's shareholding listed a total of 1.16 million pigs, +184,000 over the same period last year, and +18.9% year-on-year, including 910,000 fat pigs, 210,000 piglets, and 40,000 breeding pigs. The company's target for exporting pigs in '24 was 1.2 to 1.4 million heads, an increase of 3.45% to 20.69% over the previous year.

Investment advice: The company is an integrated enterprise in the industrial chain, benefiting from the upward trend of downstream storage. The feed business is growing significantly and contributing to performance can be expected; the meat, poultry and pig business provides flexible space for the company's performance. Considering that demand for terminal meat consumption needs to recover in the short term, we lowered the company's 2024-2026 net profit forecast to 484 million yuan, 995 million yuan, and 1,317 million yuan; EPS was 0.53 yuan, 1.08 yuan, and 1.43 yuan respectively, corresponding to PE of 14, 7, and 5 times, maintaining the “recommended” rating.

Risk warning: the risk of animal diseases; the risk of large fluctuations in raw material prices; the risk of environmental protection and aquaculture policy changes; the risk of natural disasters; the risk of food safety, etc.