Incident: On April 3, 2024, the company announced a plan to issue A shares to specific targets in 2024. The target of this fixed increase issuance is Chu Sheng Investment. The total amount of capital to be raised will not exceed RMB 250 million. After deducting the issuance fee, all of it will be used to supplement working capital.
Comment:
The fixed increase enhances the company's financial strength and shows the actual controller's confidence in the company's future development. By issuing shares to specific targets to raise capital, on the one hand, it can solve the company's working capital requirements, improve liquidity levels, and improve resilience to risks; on the other hand, it also provides a solid financial guarantee for the company's future continuous business development, which helps the company to build a comprehensive health insurance company integrating “raw materials+veterinary pharmaceuticals+animal health care”. At the same time, the company's actual controllers Zhang Weiyuan and Yu Jiao'e fully subscribed to the shares issued through Chu Sheng investment, which is an important step to support the company's business development. It fully demonstrates the actual controllers' support for the company's development, confidence in the company's future prospects, and recognition of the company's value, which is conducive to sending a positive signal to the market.
As the boom cycle of the aquaculture industry chain increases, animal insurance will also benefit, and the company's operations are expected to pick up. The pig farming market was sluggish in 2023, and the overall loss of the industry was more than a year. Combined with the impact of the epidemic, sow production capacity declined significantly. Therefore, we judge that the pig breeding market will improve greatly in 2024. Under the normal pace of pig sales, pig prices are expected to break out of the quarterly upward trend from the beginning of the year to the end of the year, and the breeding industry chain will enter an upward boom cycle. Judging from historical interpretations, the recovery in the downstream aquaculture market will usually drive the upstream animal protection and veterinary medicine markets to rise at the same time. Therefore, although the company's performance growth rate has slowed since the second half of 2023 due to the sluggish upstream farming market, we judge that with the upward trend in the aquaculture market this year, the company's business is also expected to recover.
Equal emphasis on R&D management is expected to reduce costs and increase efficiency and release production capacity. Previously, the company raised capital through the issuance of convertible bonds and invested in a project to expand the production line with an annual output of 1,000 tons of tylosin and an annual output of 600 tons. However, after the project was completed, demand for downstream pig breeding was poor in 2023, resulting in poor utilization of the company's production capacity, so the product was unable to maximize economies of scale. We believe that with the recovery of the aquaculture market in 2024, the company's production capacity is expected to be released; with the optimization of R&D management, the company's API production costs are expected to decrease and achieve cost reduction and efficiency.
Profit forecast and investment rating: We expect the company to achieve revenue of 952, 12.19, and 1,482 million yuan respectively in 2023-2025, and realized net profit of 0.38, 1.19, and 162 million yuan respectively. Corresponding PE for 2024-2025 is 20.47 and 15.03x, maintaining the “recommended” rating.
Risk warning: risk that the company's production capacity release falls short of expectations; risk of fluctuating pig prices; risk of fluctuating prices of veterinary drug products.