Matters:

The company released its annual report for 2023. The company achieved revenue of 35.97 billion yuan (yoy +9.63%); realized net profit attributable to mother of 457 million yuan (yoy -189.13%) and net profit after deducting non-return to mother of 503 million yuan (yoy -196.95%).

Commentary:

The feed business is developing steadily. The scale has grown in size in 23 years but profits are under pressure. It is expected to usher in both volume and profit growth in 24 years. The feed business faced pressure from poor demand side farming in '23, but the company strictly controlled accounts receivable risk and achieved export sales volume of 4.3052 million tons (yoy +7.88%), with poultry and premixes increasing by about 23% and 24%. Ultimately, under the balance of scale, profit, and risk, the feed sector achieved a profit of about 390 million in '23.

Looking ahead to 24, the farming boom will improve in a broad direction, and downstream customers' purchasing intentions and ability to pay will increase. The company plans to achieve a 10+% increase in export sales while continuing to make efforts in terms of operational efficiency and formulation costs, and net profit per ton is expected to rebound.

The meat and poultry business continues to grow. Terminal demand was suppressed in 23, profits were sluggish in stages, and profit recovery is expected in '24. Demand in the industry continues to expand, and the company continues to grow as a leading white feather chicken enterprise. In 2023, the number of white feather broilers sold in the industry was 7.195 billion (yoy + 18.14%). The company's new modern factory in Hebei was successfully put into operation in 23 Q1, and the total annual slaughter production capacity has exceeded 1.1 billion chicken. In '23, the company slaughtered 81 million white feather chickens (yoy +13%), of which the proportion of hairy chickens was over 90%, and the company's breeding performance improved steadily. In '23, the meat ratio dropped to 1.55, and the European index rose to 415. However, the overall animal protein market was sluggish in '23. Among them, the white chicken industry lost an average of 0.25 yuan/piece for the whole year, and the company's meat and poultry business also lost about 300 million yuan as a result. Looking ahead to 24 years, as the ancestral breeding gap gradually spreads to the commercial generation and the price recovery of animal protein products, the price of broiler products will perform well, and the company's entire meat and poultry industry chain has obvious advantages in size and efficiency, which will fully benefit from the increase in industry sentiment. Single feather profits are expected to grow. The company expects the white feather broiler business to slaughter more than 860 million birds.

Investment advice: Against the backdrop of a gradual recovery in the price of animal protein products and the supply-side capacity gap, the white chicken industry is booming in 24, profits in the company's meat and poultry sector are expected to grow, the feed sector benefits from increased demand, and sales and net profit are expected to recover upward. At the same time, the company's calculated impairment is sufficient, and profits are expected to be released after the cycle is reversed. We expect the company's net profit to be 4.86/11.29/1.062 billion in 2024-26, up 206.4%/130.1%/-5.1% year-on-year. The corresponding PE is 14X/6X/6X, respectively. Based on the company's scarce status in the industry chain, the breeding and slaughter efficiency industry is leading. Referring to comparable company valuations, we will give a target price of 12.82 yuan, and maintain a “strong push” rating.

Risk warning: pig prices have fluctuated greatly, the introduction of ancestral chicken from overseas has recovered beyond expectations, domestic breeding epidemics such as bird flu have broken out, and chicken prices have declined.