1. Yunnan industrial chain integration regional leader
The company is the first listed agricultural and animal husbandry enterprise in Yunnan Province. Focusing on the construction and development of the pig industry chain, we have formed a complete pig industry chain integrating businesses such as feed processing, pig breeding, pig slaughter, fresh pork food sales, and deep food processing and sales.
2. The pig farming sector is developing with high quality, and 5 million heads can be expected to be listed
1) The cost industry is leading, and there is considerable room for decline. Breeding: Relying on the resources of PIC International Breeding Company (the world's largest pig breeding company), as of January 2024, the company's PSY was controlled at around 27, far higher than the industry average, and is expected to improve later; Feeding: The company has always used high-standard feed ingredients and the formula is constantly changing to achieve accurate breeding. As of October 2023, the company's meat ratio is 2.6. Furthermore, with the increase in production capacity in Liangguang, the raw material port advantages will drive the company's overall feed costs to continue to decline; epidemic prevention: scientific site selection & advanced pig house & strict prevention and control, the current prevention and control results of the prevention and control company are ideal In 2023, the company's blue-ear ratio was 60%, and the survival rate for fattening was as high as 95% (as of November 2023). As of January-February 2024, the company's farming production cost was 13.8 yuan/kg, and the full cost was 14.7 yuan/kg, which is at the leading level in the industry. The company's breeding cost target for 24 years is 14 yuan/kg, and the full cost is 15 yuan/kg.
2) Production capacity & capital reserves are sufficient, and the growth rate of listing is considerable. By the end of February 2024, the company had nearly 100,000 sows, capable of breeding 85,000 sows, and is expected to keep 130,000 sows by the end of '24. Furthermore, the company has sufficient capital reserves. As of Q3 2023, the company's cash and cash equivalents were close to 800 million yuan, and the company's balance ratio was 22.27%, far lower than the industry average of 63.68%. We expect the company to launch 2.5 million/3.5 million heads in 2024/2025, respectively, and can be expected to stand at 5 million heads in the medium to long term.
3. Feed & food are developing steadily, and the integrated layout is gradually being improved
1) Feed: The company currently has a production capacity of more than 1 million tons in the feed sector, and the Guangxi Regional Feed Factory and the Yunnan Shilin Juvenile Feed Factory are currently under construction. With the improvement of the layout, the company's feed production capacity is expected to exceed 1.5 million tons by the end of '24.
2) Food: The company's slaughter sector currently has a production capacity of 2.5 million heads. In the first half of '23, the company slaughtered 842,600 heads, an increase of 15.94% over the previous year. Subsequent slaughter volumes are expected to continue to increase steadily year by year. The deep processing sector currently has a production capacity of 24,000 tons. With the smooth promotion of the brand, the company will continue to increase market development and investment, and the company plans to achieve full production and profit in the next two to three years.
4. High growth targets leading in the cost industry are given key recommendations and given a “buy” rating. Based on: 1) The cumulative production capacity removal period in this round is over 1 year, and the existing capacity removal rate may be sufficient to support a large-scale cycle reversal; 2) the company's complete cost from January to January 24 is 14.7 yuan/kg, which is in the leading position in the industry; 3) the company expects 250/3.5 million pigs to be released in 24/25, and the number released is growing steadily; 4) the company has sufficient capital reserves. The company has outstanding fundamental advantages, significant upward space, coverage for the first time, and a “buy” rating.
Risk warning: pig prices fall short of expectations; company listing falls short of expectations; risk of African swine fever epidemic; cost reduction falls short of expectations; estimates have subjective risks.