Incident: The company released a report on livestock and poultry sales in March 2024: In March 2024, the company sold 236,443 pigs (including 19,254 piglets), a change of 28.07% month-on-month, a year-on-year change of 25.89%; pig sales revenue of 40,222,300 yuan, a change of 32.32% month-on-month, a year-on-year change of 22.89%; the average sales price of commercial pigs was 14.70 yuan/kg, up 2.80% from February 2024.
The off-season is not easy, and the rebound in pig prices reflects marginal changes in supply and demand. After September 2023, the national pig price showed an overall downward trend, but the off-season after the Spring Festival was not weak. Since March of this year, the national pig price (plus three yuan) has continued to rebound. On the supply side, short-term farmers are reluctant to sell, and the phenomenon of secondary fattening is gradually increasing. In the medium term, the decline in production capacity in the industry was 40.42 million heads, down 0.6% from the previous month, and domestic breeding sows fell 2.4% from the end of 2023; on the demand side, pork consumption is off season after the holiday season but demand is slowly recovering. Current pig prices reflect marginal changes in supply and demand.
Driven by the expansion of the scale of farming, location advantage and cost improvement, it is a flexible target for the high-quality farming industry.
1) The number of pigs released by the company increased sequentially in March, and the capital cost advantage continued to be maintained. The company sold 184,620 pigs in February 2023 (including 8,300 piglets). There was a significant increase in the number of pigs sold in March. Combined, the average sales price of commercial pigs continued to rise, driving the company's high month-on-month and year-on-year growth in pig sales revenue. In addition, the company has strong financial strength, and has diversified funding sources such as convertible bonds, fixed increases for major shareholders, and government breeding subsidies. By the end of 2023Q3, the company had 685 million yuan in monetary capital and sufficient bank credit lines. It is a high-quality flexible pig enterprise with sufficient capital in the industry.
2) Location factors help the company's pig price advantage. Zhejiang has strict environmental protection policies, few free-range farmers and low breeding intensity. It is a natural breeding free zone, and the production and marketing gap makes local pig sales prices higher than the national average.
3) In terms of cost, the company adopted a new model of building breeding and self-breeding to sort out and optimize production business paths, strengthen training and assessment of breeding personnel, improve farming production efficiency, and have obvious talent concentration and technical dividends during the expansion period. As the scale of farming continues to rise, the company's reduction in breeding costs is gradually realized. Along with expectations of a rebound in pig prices, the company is expected to become a flexible target for excellent performance in the industry.
Investment suggestions: The company has achieved a complete pig industry chain layout. The traditional slaughter business is stable. It is a leading pig slaughter enterprise in Zhejiang Province; the pig breeding sector continues to release production capacity, has sufficient flexibility, gradual reduction in breeding costs, and has price advantages at the place of production and sale. It is an excellent target for the pig cycle layout; the meat processing business continues to expand, and has leading products and industry chain resources. The company's 24-25 EPS is expected to be 1.11 and 1.70 yuan respectively, and the current stock price is 19 and 12 times the 24-25 PE, respectively, maintaining a “buy” rating.
Risk warning: Increased competition in the industry; changes in regulatory policies; risk of fluctuations in pig prices; release of breeding production capacity falls short of expectations; profits from breeding business fall short of expectations; reduction in government subsidies; profit margins fall short of expectations.