Performance Overview:
The company released its 2023 annual report: In 2023, the company achieved revenue of 5.406 billion yuan, -8.24% year-on-year, and net profit to mother of 403 million yuan, -26.73% year-on-year. Among them, in Q4 2023, the company achieved revenue of 1,247 billion yuan, -29.37% year-on-year; net profit to mother was 6.0941 million yuan, -95.93% year-on-year. The company's profit distribution plan for 2023 is to distribute a cash dividend of 1.19 yuan for every 10 shares, for a total of 122 million yuan in cash dividends.
The animal insurance business is under pressure in the short term, and vaccine doses have declined and chemical drug sales prices have declined
Biological products: In 2023, the company's sales volume of biological products declined. The annual sales of the vaccine was 7.590 billion mL/head/feather, -26.19% year-on-year, achieving revenue of 1,009 billion yuan, -16.77% year-on-year, and gross margin decreased by 2.97 pcts to 46.12%.
Chemical: In 2023, the company acquired Chengdu Zhongmu to fill the gap in injections, quickly release chemical products, and achieve sales of 15,700 tons of chemical products throughout the year, +37.32% over the same period last year. The price of APIs fell in 2023, and competition in the industry was intense, affecting the overall revenue of chemicals. Annual revenue was 1,264 billion yuan, -12.09% year on year, and the average sales price fell more than 80,300 yuan/ton, or -35.98% year on year, reducing gross profit space. Gross margin was -4.68 pct to 21.47% year over year.
Teaming up with Head Breeding Group, we can look forward to a recovery in performance in 2024
The company continues to deepen the cooperative relationship with the Group's customers. In April 2022, the company and Muyuan established a joint venture between Zhongmu Muyuan, and in December 2023, the company's shareholder Zhongmu Group obtained 51% of the shares in Sino-Singapore Foods, the operator of the poultry industry chain under New Hope, and reached a strategic cooperation. In-depth cooperation with major downstream customers may drive an increase in sales in the company's “Pharmaceuticals, Materials, and Vaccines” sectors, increase the company's profits, and the level of performance is expected to pick up in 2024.
Investment advice:
The company has a complete business structure, close relationships with Group customers, and as pig prices recover, the price center of animal insurance products is expected to pick up, and there is plenty of room for growth in 2024. The company has a non-plague vaccine. If successfully listed, it will strongly support the company's performance and valuation. Without considering the incremental room for non-plague vaccines, the company is expected to achieve net profit of 4.7/5.4/60 billion yuan in 2024-2026, with a year-on-year growth rate of 15.4%/15.3%/12.1%, and corresponding EPS of 0.46/0.52/0.59 yuan respectively. The company was given 25 times PE in 2024, and the corresponding 6-month target price was 11.38 yuan, which covered the “buy-A” investment rating for the first time.
Risk warning: risk of animal disease outbreaks, risk that the aquaculture industry boom falls short of expectations, risk of product approval progress falling short of expectations, risk of product launch and promotion falling short of expectations, risk of production capacity building falling short of expectations.