Superstar Agriculture and Animal Husbandry released its 23rd annual report: The company achieved revenue of 4.04 billion yuan in 2023, +1.83% year over year, and realized net profit of 650 million yuan to mother, +160 million yuan in the previous period, and basic earnings per share of -1.27 yuan. 23Q4 achieved revenue of 1.03 billion yuan, -28.7% year-on-year, and realized net profit of -300 million yuan to mother. An asset impairment provision of $111 million was calculated at the end of 23 years, including an impairment provision of $45 million for expendable biological assets and a loss of impairment of goodwill of $29 million. On the one hand, the impairment was that pig prices were low at the end of the period, and depreciation was applied to the stored pigs. Second, it was due to asset impairment and impairment of goodwill brought about by the company's gradual shutdown of the yellow feather chicken breeding business.

There was a sharp increase in the number of pigs released in '23, but poor pig prices led to a loss in performance. The company released 2.6737 million pigs in '23, a significant increase of 74.7% over the previous year. While production volume has increased dramatically, the company has continuously improved farming efficiency. Through in-depth cooperation with internationally renowned companies such as Pipestone and PIC, it has built a “seed+material+management+biosafety+environmental protection” five-star farming system, and the company's production performance, production efficiency and biosafety have all been greatly improved. However, due to pig prices falling below the cost line, the company experienced a loss in annual results. According to Wande data, the average price of pigs in '23 was 15.0 yuan/kg, -19.3% compared to the same period last year.

The company's farming goals are ambitious, and the company is expected to continue to maintain high growth in the future. The company strives to become a highly competitive pig breeding enterprise in the world. The scale of sales will exceed 10 million heads, the cost will not be higher than 80% of the industry average, and the company has huge room for future growth. At the same time, the company expands production capacity through various methods such as leasing, acquisition, construction and expansion of pig farms, etc., which can effectively reduce capital requirements and achieve low-cost expansion on the premise of ensuring capital security. The company's Dechang Superstar Pig Breeding Integrated Project is currently proceeding in an orderly manner with related work being put into operation, and it is expected to reach full production within this year.

The balance ratio has risen slightly, but it is still at a low level in the industry. Other key financial indicators. Balance ratio: Affected by continued losses in the pig breeding business, the balance ratio of the company's 23 annual report was 59.85%, a slight increase of 3.26 pct from the '23 quarterly report, but it is expected that the company's balance ratio level is still moderately low in the current pig breeding sector. Productive biological assets: The company's 23 annual report on productive biological assets was 390 million yuan, a slight decrease of 0.3 billion yuan from the 23 quarterly report, or mainly due to the decline in the book value of sows that can breed sows due to a decrease in the company's production costs, and the company shut down the yellow feather broiler breeding business. Capital expenditure: The company's capital expenditure for the full year of '23 was 1.0 billion yuan, down 110 million yuan from the previous year, and the projects under construction at the end of the year were 350 million yuan, a year-on-year decrease of 757 million yuan; with the commissioning of the company's Dechang project, capital expenditure may drop further in '24.

Profit forecasting and investment advice. We expect that the number of pigs released by the company will continue to grow rapidly in '24. At the same time, pig prices may improve, and the company's performance is expected to improve significantly. Overall, we forecast an EPS of 1.36/1.34/3.73 yuan for 24-26, respectively. Considering the company's low cost and high growth rate, the company was given 5.5 to 6.0 times PB in 24 years, with a corresponding reasonable value range of 40.71 to 44.41 yuan, giving it a “superior to the market” rating.

Risk warning: In the event of an epidemic that exceeded expectations, pig prices fell far short of expectations, and the company's sales volume fell short of expectations