Sales volume increased and prices increased in March, and losses narrowed month-on-month
The company expanded steadily. In March/24Q1, 171,000 pigs were listed, +42%/+41% year over year; losses in March may have narrowed slightly compared to February, driven by rising pig prices. This cycle has a long loss period and a short “return period”. The industry's cash flow pressure continues to be interpreted, which is expected to drive energy surpassing expectations, and the 24H2 pig price reversal is imminent. We maintain our profit forecast. The company's net profit for 2024/25 is estimated to be RMB 355/1.6 billion and BVPS of RMB 8.66/11.45, respectively. We refer to the average valuation value of comparable companies in 2024 of 3.66x PB. Considering the company's steady expansion and stable capital structure, the company was given 5.49xPb in 2024, corresponding to a target price of 47.54 yuan, maintaining a “buy” rating.
Sales volume increased in March and prices increased. The loss in March alone was about 0.11 to 013 million yuan. The company released 1.71 million pigs in March, +42% year-on-year, of which 163,000 were fat pigs, accounting for 96%.
The average sales price of fat pigs was 14.01 yuan/kg, down year on year, up 0.97 yuan/kg from February. The estimated weight of fat pigs is 120 to 123 kg/head, which is not much changed compared to February. The company operates steadily, focusing on training internal skills rather than “speculative expansion”. Fat pigs generally maintain a weight range of 120 to 125 kg/head. The company listed a total of 497,000 pigs in 24Q1, +41% over the same period last year. Based on the customs records of March 15, 2024, we estimate the company's Q1 farming loss of 0.69 to 75 million yuan, of which the loss in March alone was about 0.11 to 013 million yuan. The loss margin may have narrowed slightly compared to February due to rising pig prices.
Cash flow pressure in the industry continues to be interpreted. The 24H2 pig price reversal is imminent. Unlike previous cycles, the loss period at the bottom of this cycle is long and the “return period” is short. With the exception of the 2022 H2 industry profit period of about half a year, the other two profit periods are only about 1 month. Increased cash flow pressure at the bottom of the cycle is the core driver of the gradual elimination of sow production capacity. Some group farms are far higher than the industry's cost line due to rapid expansion in the early stages, poor breeding management, etc., and the time and depth of losses are even greater than that of the industry. The financial pressure is greater, and even some group farm capital has broken down.
Currently, the average price of pigs is still below the average cost line of the industry. Continued cash flow pressure in the industry may support the elimination of expectations in this cycle, thereby driving the subsequent upward trend in pig prices exceeding expectations. 24H2 pig prices may be worth looking forward to.
The breeding column is growing steadily, and the company's farming performance is outstanding
The company's farming performance is outstanding. The average total cost of farming in January-January was about 14.7 yuan/kg, leading the industry.
According to the company's announcement, the company plans to outsource about 300,000 piglets to help achieve the target of 2.5 million piglets in 2024. As of January 2024, the company has outsourced 180,000 piglets. The company's breeding stock of sows is growing steadily. It is estimated that the current number of cows may reach more than 90,000 (about 85,000 at the end of February). The company expects 24,000 sow farms to be delivered in the first half of 2024. At that time, the company will be able to breed 130,000 heads, or support the target of releasing 3.5 million heads by 2025.
Risk warning: the number of pigs released falls short of expectations, pig prices fall short of expectations, repeated non-plague outbreaks, large-scale animal disease outbreaks, the pace of expansion does not match market demand, etc.