Incidents:

The company disclosed its 2023 annual report. In 2023, the company achieved revenue of 5.632 billion yuan, +12.52% year-on-year, achieving net profit to mother of 1,203 million yuan, and net profit to mother of -78 million yuan in 2022.

The release of pigs achieved growth, and low pig prices dragged down performance

The number of pigs released by the company has achieved rapid growth. By the end of 2023, the number of pigs released by the company for the year was about 3.2 million, an increase of 75% over the previous year, accounting for about 5.09% of the number of pigs released in Hunan Province. In 2023, the company exported 61,800 pigs, an increase of 28.75% over the previous year. The company's losses were mainly due to the continued low level of pig prices throughout 2023. As feed costs decrease and production efficiency increases, farming costs are expected to drop further.

Sow production capacity reserves are abundant, and the whole industry chain is developing steadily

As of the end of 2023, in terms of breeding, the number of breeding pigs kept in the company was 349,200, of which 209,900 sows can be raised, and the production capacity of new sows per year was 516/694,600, respectively. In terms of slaughter, the company has completed the annual production capacity layout for slaughtering 2.05 million pigs. In terms of feed, the company currently has a feed production capacity of nearly 1.2 million tons, of which an additional 420,000 tons of feed were added in 23 years.

Backed by the Hunan State-owned Assets Administration Commission, the capital reserves are relatively sufficient

The actual controller of the company is the Hunan Provincial State-owned Assets Administration Commission, which is a state-owned listed enterprise. In addition to raising 1.55 billion yuan in targeted capital in 2023, the company also received credit support from many banks. By the end of 2023, the company had a credit limit of more than 5 billion yuan, a book currency balance of 1.5 billion yuan, and sufficient capital reserves.

Profit Forecasts, Valuations, and Ratings

We expect the company's revenue for 2024-2026 to be 82.56/104.56/12.02 billion yuan, respectively, with year-on-year growth rates of 46.59%/26.64%/14.79%, and net profit to mother of 269/14.16/1,529 billion yuan respectively. The year-on-year growth rates will reverse to profit/ 426.07%/7.96%, and EPS of 0.21/1.12/1.21 yuan/share, respectively. We believe that the pig cycle is expected to reverse in the second half of the year, and that the company is expected to achieve performance growth. We recommend that you keep an eye on it.

Risk warning: The rise in pig prices fell short of expectations; the company's listing fell short of expectations; the risk of fluctuating raw material prices.