Incident: The company released its 2023 annual report on April 23. The full year of 2023 achieved revenue of 8.58 billion yuan, -9.2% year over year; realized net profit to mother of -60 billion yuan, -789.3% year over year; and accrued asset impairment losses of 160 million yuan, which dragged down the annual performance. Among them, Q4 achieved operating income of 24.1 billion yuan, -20.4% year-on-year; net profit to mother of 250 million yuan, -681.8% year-on-year, and accrued asset impairment losses of 60 million yuan.
In 2023, the number of pigs released remained high, and the cost reduction target continued to be achieved. In 2023, the company sold a total of 2.303 million pigs, +91.1% year over year; the average sales price was 15.0 yuan/kg, -23.6% year over year, with an average weight of 122-123 kg. Among them, Q4 sold 622,000 pigs, with an average sales price of 14.4 yuan/kg. The company's farming costs are gradually moving closer to the excellent echelon in the industry, and the company's full cost has been reduced to 16.5 yuan/kg in the fourth quarter. Based on an average listing weight of 122 kg, the company had an average initial loss of about 256 yuan in the fourth quarter. The company plans to release 4 to 5 million pigs in 2024. Currently, it has a fattening capacity of 310-3.3 million heads, and is continuing to expand production capacity through the asset-light model of surrogacy. As of April 2024, the company's breeding stock is close to 150,000, and PSY has reached about 25. There is still room for further improvement in production efficiency in the future as the company updates its breeding lines.
The slaughter business continues to gain strength, and production capacity reserves are sufficient. In 2023, the company slaughtered 4.482 million pigs, +29.4% year-on-year. The company's current slaughter capacity is about 14 million heads/year, and the target is 6 million pigs to be slaughtered in 2024. Slaughter is the company's traditional area of advantage. It provides the company with stable and stable cash flow, and can effectively smooth out the adverse effects of cycle fluctuations.
Monetary reserves are relatively abundant, and various means are used to reduce the balance ratio. By the end of 2023, the company had a monetary capital of 630 million yuan, and the overall capital reserves were relatively abundant; the net cash flow from operating activities was 530 million yuan, and the hematopoietic capacity of the main business was relatively excellent. In addition, the company's convertible bonds have a balance of 240 million yuan. If this part of the convertible bonds is successfully converted into shares, the debt ratio will decrease.
Investment advice: We expect the company's net profit to be 591, 12.94, and 1,357 million yuan respectively from 2024 to 2026, and EPS of 0.95, 2.09, and 2.19 yuan, respectively, and the corresponding PE is 22, 10 times, and 10 times, respectively. The pig cycle is expected to see an important reversal in the second half of 2024. The company is an integrated leader in pig breeding and pig slaughter in Zhejiang. Pig sales enjoy the advantage of high regional prices. Currently, breeding capacity reserves are sufficient, and breeding costs have dropped significantly. It is expected that under the layout of the entire industry chain, it will fully benefit from the rise in cyclical prosperity and maintain the “recommended” rating.
Risk warning: risk of fluctuating pig prices; risk of animal disease; risk of pigs falling short of expectations.