Revenue grew steadily in 2023, and net profit declined year-on-year due to the sluggish aquaculture market. The company's revenue in 2023 reached 116.117 billion yuan, +10.89% year-on-year; net profit to mother reached 2,741 billion yuan, -7.31% year-on-year.

The overall business of the company's various sectors developed steadily. Among them, feed revenue in 2023 was +13.03%, gross margin reached 8.53%, +0.48pct year on year. The company's feed sales volume reached 22.6 million tons, an increase of 2.36 million tons over the previous year, and the market share continued to increase. Revenue from agricultural product sales in 2023 was +24.37% year-on-year, with gross margin of 6.23%, year-on-year. Pig prices were low throughout 2023. The company released about 4.6 million pigs, focusing on exploring and implementing the “outsourced piglets, company+family farm, locking in profits, and hedging risks” operation model, which reduced costs; in addition, the raw fish business was affected by the downturn in the market, with annual losses exceeding 300 million yuan. The company strengthened the integrated development strategy of feed and animal protection, developed a variety of functional feeds with excellent quality and meeting farming needs, and achieved a slight increase in animal insurance revenue in 2023.

2024Q1 performed well, and the farming business achieved good profits. 2024Q1's revenue reached 23.172 billion yuan, -0.80% year on year; net profit to mother reached 881 million yuan, +111% year over year. The company's profit level increased significantly in 2024Q1. The gross margin of 2024Q1 reached 10.75%, +2.28pct compared to the full year of 2023.

Looking at the 2024Q1 business split, it is estimated that the company's 2024Q1 feed business net profit is about 54-560 million yuan, the net profit corresponding to the breeding and animal insurance business may be close to 100 million yuan, the pig breeding business is expected to profit about 2-250 million yuan, and aquaculture losses may be close to 50 million yuan (including asset impairment losses). The low season for pig prices after the 2024 Spring Festival will not be poor. I am optimistic that the pig market will usher in a good recovery in the second half of 2024, and related sectors of the company's breeding chain are expected to benefit simultaneously.

Expenses are generally stable during 2023, and management and operation will continue to be optimized. The company's sales/management/ financial expenses ratio in 2023 was 1.95%/2.25%/0.44%, respectively, +0.06pct/-0.22pct/-0.13pct compared to 2022 as a whole. The company's sales expenses have increased slightly, mainly due to the expansion of the business scale, the increase in personnel, the increase in the level of remuneration and the increase in business promotion expenses. However, the company attaches importance to improving organizational management efficiency, giving full play to the advantages of middle and platform management. By establishing a four-in-one management model of “procurement+development+sales+production”, the company ensures rapid internal linkage, increases market influence, and implements a three-level R&D system to ensure forward-looking, sustainable export and rapid transformation of technological achievements, which can promote the strengthening of management and R&D efficiency to the greatest extent possible, and the management level is expected to continue to improve in the future.

Risk warning: The risk of abnormal weather and epidemics affecting phased fluctuations in the feed industry.

Investment advice: Maintain a “buy.” Considering that the fishery market has been sluggish for a long time and there is great uncertainty, we lowered the company's profit forecast for 2024-2025. The company's net profit for 2024-2026 is estimated to be 37.80/43.84/5.030 billion yuan respectively (originally estimated 2024-2025 was 52.76 billion yuan, 5.966 billion yuan, respectively), corresponding to 22/19/17 times PE, respectively.