Steady increases in feed sales contributed to profits, and upward profit in the pig and chicken cycle is expected to improve. Maintaining the “Buy” rating company's 2023 annual report, achieving revenue of 35.97 billion yuan in 2023, yoy +9.63%, net profit to mother - 457 million yuan, yoy -189.13%, of which 2023Q4 achieved revenue of 9.078 billion yuan, yoy -2.29%, and net profit of the mother - 497 million yuan, yoy -404.45%. The early ancestral introduction gap for white feather chickens has spread to the broiler side, and the tight supply is expected to continue throughout 2024. Along with the reversal of the pig cycle, the company's profit is expected to improve further.

We raised the company's profit forecast for 2024-2025 and added a profit forecast for 2026. The company's net profit for 2024-2026 is 9.26/12.46/9.39 yuan (the original forecast for 2024-2025 was 8.29/10.97 billion yuan, respectively), the corresponding EPS is 1.01/1.36/1.02 yuan, respectively, and the PE corresponding to the current stock price is 7.2/5.4/7.1 times. The steady increase in feed sales contributed to profits, and the upward profit of the pig and chicken cycle is expected to improve, maintaining the “buy” rating.

The feed business is developing steadily, and the steady increase in sales volume is expected to improve the breeding business to achieve revenue of 16.47 billion yuan, yoy +5.29%, net profit of 370 million yuan in 2023, feed export sales volume of 4.3052 million tons, yoy +7.88%, and net profit of 90 yuan/ton per ton. By category, sales volume of pig feed, poultry, ruminants, and other materials was 155.65, 184.95, 74.21, 15.7 million tons, yoy -0.10%, +22.70%, +0.87%, and -17.28%. In 2023, the company's large-scale farm bulk material sales volume will be more than 30%. In 2024, the company will continue to increase the share of large-scale customers, and plans to increase the total export volume of feed by YOY +10%.

White chicken breeding performance continued to improve, slaughter volume increased steadily, and production capacity was sufficient. In 2023, the meat and poultry business achieved revenue of 11.212 billion yuan, yoy +20.77%, and net profit of 320 million yuan. The annual breeding cost of white feather broiler is about 4.6 yuan/kg, the feed-to-meat ratio dropped to 1.55 (1.6 in 2022), the European index rose to 415, and production performance continued to improve. The company's stock participation in Baiyu Chicken Holdings has a total annual slaughter capacity of over 1.1 billion birds. In 2023, the slaughter volume is 81 million, yoy +13%. It is estimated that 860 million birds will be slaughtered in 2024, and the slaughter volume is steadily increasing.

The pig business optimizes the pig farm structure and steadily promotes cost reduction. In 2023, the pig business achieved revenue of 2,576 billion yuan, yoy +25.19%, and net profit of 4.7 billion yuan. There were 1.16 million pigs released throughout the year, including 91/1/4 million fat pigs/piglets/breeding pigs. In February 2024, the company will be able to breed 40,000 heads and keep 14,000 heads in reserve. It is estimated that 1.2 to 1.4 million pigs will be released in 2024.

The company promotes the optimization of the internal pig farm structure, and the full cost is expected to be reduced to 17.5 yuan/kg in 2024.

Risk warning: Company costs fall short of expectations, pig and chicken price increases fall short of expectations, risk of epidemic diseases, raw material price risk.