Core views:
The low pig price in '23 dragged down performance, and the balance ratio increased slightly. The company released its annual report for the year 23, achieving revenue of 8.578 billion yuan (yoy -9.24%); net profit to mother was -605 million yuan (yoy -789.34%), mainly due to the sluggish pig market and preparation for a drop of 86 million yuan in inventory prices for expendable biological assets. As of the end of 23, the company's balance ratio was 74.68%, up 2.57 pct year on year; the management expense ratio in '23 was 2.58%, up 0.75 pct year on year.
The production volume continues to grow rapidly, and farming costs are steadily declining. The company sold 2.3027 million pigs in '23, an increase of 91.13% over the previous year. According to the annual report, in '23, the company continued to reduce pig breeding costs by strengthening procurement management, optimizing feed formulations, improving production efficiency and breeding technology. According to estimates, commercial pig heads lost about 260 yuan each in '23, with an average total cost of about 17 yuan/kg. Since 23 years, the company has actively allocated funds to support growth, and plans to increase production capacity by no more than 1.6 billion yuan to help expand production capacity and optimize capital structure. By the end of '23, productive biological assets were 275 million yuan, down 15.6% year on year, mainly due to replacement of high-priced sows; fixed assets of 4.994 billion yuan, up 13.91% year on year, mainly due to the transformation of pig breeding projects under construction in Lanxi Animal Husbandry; according to equity incentive targets, the target sales volume for 24 was 5 million heads, a trigger value of 4 million heads.
The amount of pigs slaughtered increased by nearly 30%, and profits were damaged due to the slump in the market. According to the annual report, the company slaughtered 4.4817 million pigs in '23, up 29.38% year on year. Affected by the sluggish pig market, the gross profit margin of the slaughter and meat processing business was -0.39%, down 6.12 pct year on year by expanding the sales network, improving operating capacity, and consolidating the slaughter side's refined management model.
Profit forecasting and investment advice: Maintain a “buy” rating. We estimate that the company's net profit for 2024-26 will be 823/15.59/2,078 million yuan, respectively, and the corresponding EPS will be 1.33, 2.52, and 3.36 yuan/share, respectively. Refer to industry comparable company valuations. Considering the company's high growth rate, the company was given 17 times PE in 2024, corresponding to a reasonable value of 22.59 yuan/share, maintaining a “buy” rating.
Risk warning. Risk of fluctuations in livestock and poultry prices, risk of fluctuations in raw material prices, risk of animal diseases, and food safety risks.