24Q1 achieved net profit of 109 million yuan, -65% year over year, maintaining the “Buy” rating company's report for the first quarter of 2024. 24Q1 achieved operating income of 687 million yuan, -25% year-on-year, +21% month-on-month, and net profit of 109 million yuan to mother, -65% year-on-year, reversing losses from month to month. The year-on-year decline in the company's profit was mainly dragged down by falling chicken seedlings prices. The scale of the company is expanding steadily. The company's net profit for 2024/25/26 is estimated to be 1,239/12.71/597 billion yuan, respectively, and the corresponding EPS is 1.12/1.15/0.54 yuan. Comparable companies agreed to expect 14 times PE in 2024. Considering that domestic production capacity of high-quality ancestral chicken breeders is still scarce, the price of probiotic Li Feng varieties is expected to remain high, and at the same time, there is a contraction in the supply of commercial chicken seedlings or a marked increase in prices, we gave Probiotic a profit of 18 times PE in 2024, corresponding to a target price of 20.16 yuan, maintaining a “buy” rating.
Reduced prices of chicken seedlings dragged down profits, and the supply of commercial chicken seedlings contracted
The year-on-year decline in the price of chicken seedlings in 24Q1 dragged down profits. We estimate that the company's profits are mainly contributed by the white feather broiler seedlings business. Among them, parent generation and commercial white feather broiler seedlings may have contributed profits of 0.2 to 50 million yuan and 0.7 to 100 million yuan respectively, with a year-on-year decline of about 65% to 75%, 50% to 60%, respectively. 909 chicken seedlings or basic break-even, pig breeding, and other businesses may still have slight losses. Looking at the detailed breakdown of the chicken seedlings business, in terms of volume, the 24Q1 company sold 130 million chicken seedlings, or -13%. Among them, the sales volume of chicken seedlings on parent's behalf did not change much, and remained between 3 and 3.5 million sets, mainly due to the reduction in sales of commercial chicken seedlings. On the one hand, the decline in sales of commercial chicken seedlings was reduced in December, and the incubation period for chicken seedlings in 2023 spanned the seasonal decline caused by December 2023 and January 2024. On the other hand, it is also related to the adjustment of the company's production schedule. In terms of price, the unit price of chicken seedlings sold by the 24Q1 company was about 4.21 yuan/piece, compared to -19%. We estimate that the price of chicken seedlings in the 24Q1 company was basically between 25 to 35 yuan/set, down 40% year on year, and the price of commercial chicken seedlings was about 3.4 to 3.8 yuan/feather, down about 15% year on year.
Lifeng and Yibeng 909 have excellent performance, and can be expected to continue to expand in scale
The white feather chicken seedling product “Lifeng” currently sold by the company has a clear competitive advantage. We estimate that in 2023, its parent's share of the chicken seedlings market will be about 20% and the commercial chicken seedlings market share will be about 8%; at the same time, the “Probiotic 909” independently developed by the company is well recognized by the market for its excellent production performance. Judging from the company's sales growth rate and product performance, we believe that the company's plan to sell 1 billion chickens in 2025 and probiotics in 909 is highly achievable, and the scale and market share can be expected to continue to increase.
2024 or current supply and demand gap, commodity surrogate prices may rise
The 2022 ancestral breeding gap has gradually spread to the commercial-generation chicken seedlings chain. The 24Q1 listed companies' sales of chicken seedlings declined year-on-year or confirmed that the supply of chicken seedlings in the industry had shrunk. We expect that the current supply and demand gap for white feather broilers in 2024 is expected to drive the price of white feather chicken seedlings to enter a long cycle this year and next, or drive the price of the company's commercial chicken seedlings to rise. At the same time, the domestic ancestral renewal structure continues to deteriorate, and the company's breed advantage is expected to keep the price of chicken seedlings relatively high for their parents. The company's profit growth can be expected.
Risk warning: chicken price rise/cost falling short of expectations, sudden large-scale bird flu outbreaks, etc.