In 24Q1, the company's feed sales increased steadily. Benefiting from the optimization of the structure of aquatic products, net profit per ton rebounded markedly; pig farming benefited from cost improvements and futures hedging to reverse losses. The downstream farming boom may boost the company's main feed business profit. Pig farming is also expected to contribute to profit flexibility during the upward period of pig prices and maintain a “highly recommended” rating.
The main business performed steadily, and the 23-year performance was in line with expectations. The company disclosed its 2023 annual report. During the reporting period, the company achieved revenue of 116.1 billion yuan, +11% year-on-year; realized net profit to mother of 2.74 billion yuan, -7.3% year-on-year.
In 23Q4, the company achieved revenue of 29.2 billion yuan, +13% year-on-year; realized net profit of 490 million yuan, or -43% year-on-year. The company's 2023 performance was in line with expectations. By sector: 1) In terms of feed, the company's main feed business performance remained steady, achieving export sales of 22.6 million tons, +12% year over year. Among them, sales of aquatic products were 5.24 million tons, +2% year over year; sales of poultry were 11.3 million tons, +13% year over year; and sales of pig feed were 5.79 million tons, +17% year over year. 2) In terms of farming, in 2023, the company released about 4.6 million pigs, +44% over the same period; aquaculture revenue was 1.4 billion yuan, but due to low prices, the annual loss was 3-4 billion yuan.
Feed volume increased sharply & pigs reversed losses. 24Q1 results exceeded expectations. In 24Q1, the company achieved revenue of 23.2 billion yuan, -0.8% year-on-year; realized net profit of 861 million yuan, +111% year-on-year. The company's first-quarter results exceeded expectations. The slight year-on-year decline in revenue was mainly due to a drop in livestock and poultry prices due to falling raw material prices. The sharp year-on-year increase in profit may be due to increased feed sales, an increase in profit due to the optimization of aquatic feed structures, and pig futures hedging driving the pig breeding sector to reverse losses.
Tons of profit may continue to rise, and pig farming is expected to contribute to profit flexibility. In terms of feed, as of April 22, the prices of corn, soybean meal, fishmeal, etc. fell by 20%, 33%, and 29%, respectively, from previous highs, and the price of feed ingredients fell or drove the company's profitability to recover. Sow production capacity fell to a low level, and 24H2 pig prices may rise steadily, which is expected to drive the company's feed sales to maintain a high increase. In terms of breeding, as of March '24, there were 39.92 million breeding sows nationwide, -3.6% from quarter to quarter, down 9.1% from December '22. As sow production capacity is transferred to the supply side of pigs, 24H2 pig prices may have rebounded steadily. From 2024-2025, the number of pigs released by the company may still maintain steady growth, and pig farming may also contribute to profit flexibility during the period when pig prices rise.
Maintain a “Highly Recommended” investment rating. The downstream livestock and poultry farming & aquaculture boom is expected to drive the company's main feed business to prosper, and the pig breeding business may contribute to profit flexibility during the period when pig prices rise.
We expect the company's 24-26 profit forecasts to be 3.52 billion yuan, 4.13 billion yuan, and 4.49 billion yuan respectively. The corresponding PE is 24X, 20X, and 19X, respectively, maintaining a “highly recommended” investment rating.
Risk warning: Raw material prices fluctuated more than expected; downstream aquaculture boom fell short of expectations; sudden large-scale uncontrollable outbreaks of the epidemic, etc.