Hefeng Co., Ltd. released its annual report for the year 23: the company achieved operating income of 35.97 billion yuan (+9.63% year over year) and net profit to mother of 450 million yuan (+51 billion yuan in the previous period). Basic earnings per share were -$0.50. Accrued asset impairment losses of 140 million yuan and credit impairment losses of 40 million yuan. Among them, 23Q4 achieved operating income of 9.08 billion yuan (-2.29% YoY) and net profit to mother of 50 billion yuan.

In 23 years, the feed business focused on management, transformation, and risk prevention. In 2023, the company achieved feed sales of 4.352 million tons, +7.88% year on year, and sold 155.65/184.95/742,100 tons of pig feed, poultry and ruminant feed respectively, -0.1%/+22.7%/+0.87%, respectively. The downstream farming industry was generally sluggish throughout 2023, and livestock and poultry prices were mostly low, but the company's overall feed sales continued to grow at a certain level. The company actively adjusted to adapt to changes in the industry and accelerated the transformation from “channel advantage” to “equal emphasis on channel and large-scale direct sales” business model. In '23, the company's large-scale market bulk material sales increased by more than 30% year-on-year, and the share of large-scale market sales increased significantly. At the same time, the company actively controls the risk of bad debts, improves the customer risk assessment system, and achieves qualitative growth.

The market share of white chicken slaughtered has further expanded, and production performance has been rising steadily, but profits are poor due to the squeeze on both ends. The 23 participating companies slaughtered a total of 81 million white feather broilers, +13% over the same period, and produced and sold 2.12 million tons of split broiler products, +14% over the same period. The total production and sale of 32,000 tons of prepared products and cooked food was 32,000 tons, +19% over the same period last year. In '23, the company's white chicken business steadily expanded its production scale, and production performance increased steadily. The ratio of farmed meat dropped to 1.55, and the European index rose to 415. However, looking at the full year of '23, the white chicken slaughter industry lost money for most of the year due to weak demand and better chicken prices, and the white chicken breeding industry also experienced deep losses in the second half of the year. Affected by this, the company's 23-year white chicken business may also have lost money. Looking ahead to '24, the company's current slaughter production capacity will reach 1.1 billion birds. The company's white chicken breeding and slaughter volume may rise further in '24, and production costs are expected to drop. At the same time, with the recovery of consumption, the company's white chicken business profits may also improve.

Control the scale of pig farming, adjust the structure, reduce costs, and increase efficiency. In '23, the company controlled a total of 1.16 million pigs for export, which was +18.9% over the same period last year. Among them were 91/1/4 million fattening pigs, piglets, and breeding pigs respectively. The pig breeding industry experienced deep losses in '23, and financial pressure increased. The company strictly controlled the scale of breeding, adjusted the regional structure, increased capacity utilization in advantageous regions, and gradually eliminated backward production capacity. Looking forward to 24 years, we expect the company to adhere to the concept of steady development, reasonably control the scale of farming, optimize the asset structure, reduce farming costs, and improve farming efficiency.

Profit forecasting and investment advice. We expect EPS to be 0.64/0.76/1.12 yuan respectively in 23-25. Considering that the company's poultry business and pig business are expected to recover in 24, the company will be given 14-16 times PE in 24, with a corresponding reasonable value range of 8.96 to 10.24 yuan, maintaining a “superior to market” rating.

Risk warning. Consumption fell far short of expectations, there was an epidemic that exceeded expectations, and the company's feed sales fell short of expectations.