The 2023 results are within the scope of the performance forecast, in line with market expectations. New Wufeng announced results: 2023 revenue +12.5% to 5.63 billion yuan, net profit to mother of -1.13 billion yuan year-on-year, of which inventory prices declined by 220 million yuan. Weak pig prices led to a year-on-year decline in the company's performance. Among them, net profit for 1Q/2Q/3Q/4Q23 was -1.1/-3.2/-1.6/-5.3 billion yuan year-on-year to -2.3/-3.9/-1.4/-450 million yuan. The results are within the performance forecast range and are in line with market expectations.

Development trends

The asset-light model of pig production is expanding rapidly, and the feed and slaughter business is developing steadily. 1) Pigs: Domestic pig sales revenue in '23 was +39.5% to 3.62 billion yuan, sales volume was +75.2% year-on-year to 3.21 million heads, and sales volume expanded rapidly; pig export revenue was -1.4% to 130 million yuan, and export volume was +28.8% year-on-year to 620,000 heads. Revenue declined due to falling export prices. 2) Feed: Feed revenue in '23 was +81.5% to 140 million yuan, with export sales of 341,000 tons of feed, and +33,700 tons year-on-year, mainly due to the acquisition of 100% of NetLingwu's shares held by Modern Agriculture Group during the reporting period. 3) Slaughtered meat products: Revenue from slaughtering refrigerated/frozen meat/fresh meat in '23 was -8.9%/-40.1%/-11.6% to 6.8/27/240 million yuan, and sales of butchered meat products were +14.5% to 59,000 tons year-on-year. 4) Raw material trade and others: Raw materials trade and other revenue in '23 were 540 million yuan, respectively, -25.0% year-on-year.

Efforts are being made to improve management to drive costs down, and the shareholder background of the Hunan State Assets Administration Commission may form a certain amount of financial support. 1) Pig breeding: By promoting the optimization of breeding pig breeds and increasing the utilization rate of production capacity, we estimate that the company's total cost in 23 years was 18.0-18.5 yuan/kg, of which 4Q23 dropped to 17.5-18.0 yuan/kg, and there is still plenty of room for optimization in the future. 2) Financial situation: At the end of 2023, the company's balance ratio was 75%, or 64% if the impact of leasing liabilities was excluded. We believe that the company relies on the Hunan Provincial State-owned Assets Administration Commission and adopted a leasing model for asset-light expansion, and has financial stability to a certain extent.

Adequate production capacity reserves support rapid growth, and there is still plenty of room for optimization in cost improvement. 1) Release growth: The company's pig production capacity expanded in an orderly manner. Thanks to the expansion of the leasing model and the commissioning of fund-raising projects, 7/27 sow farms/fat pig farms were delivered in 2023. Of these, the number of sows that can be raised at the end of '23 was +35% to 209,900. We judge or support the company to produce 4 to 4.5 million heads in 24 years. 2) Increase efficiency and reduce costs: The company attaches importance to cost process management, and is expected to contribute to cost reduction by optimizing the structural ratio between fattening and sow production capacity, expanding and improving the quality of self-produced feed, and speeding up the renewal of high-quality, high-yield reserve breeding pigs. We believe that cost reduction is the key to releasing the company's flexible performance. 3) Downstream expansion: The company focused on slaughter and hot white bar business in 23 years, and added 500,000 heads of production capacity for downstream slaughter. We believe that the collaborative capacity of the entire industry chain is expected to increase.

Profit forecasting and valuation

The central assumption of lowering pig prices in '25 is basically flat year over year. We maintain our 2024 net profit forecast of 115 million yuan and lower the net profit forecast for 2025 by 32% to 640 million yuan. Considering that the company's listing volume is growing rapidly, it maintains an outperforming industry rating. Based on the company's historical average market capitalization center and profit forecast adjustments, the target price was lowered by 23% (SOTP valuation method) to 10 yuan, corresponding to 20% upward space.

risks

Sales volume fell short of expectations; rising raw material costs; epidemic and policy risks.