Financial Services Association, April 25 (Reporter Liu Jian) The pig industry lost an overall loss last year, and Shennong Group (605296.SH) was no exception, but the loss did not stop the company from expanding its production capacity. Following the company's sales volume of 1.52 million heads last year, an increase of more than 600,000 heads, the number of heads sold is expected to reach 2.5 million heads in 2024. At the same time, the company plans to continue to increase accordingly in 2025.

This evening, Shennong Group released its 2023 annual report. During the reporting period, the company achieved operating income of 3,891 billion yuan, an increase of 17.76% over the previous year. Net profit attributable to shareholders of listed companies was a loss of 401 million yuan, a year-on-year profit of 256 million yuan.

A Financial Services Association reporter noticed that since its listing, Shennong Group's production capacity has continued to expand. In 2020, the number of pigs released by the company was only 411,000, rapidly growing to 653,700 heads and 929,000 heads in 2021 and 2022, while in 2023, it further grew to 1,5204 million heads, with a growth rate of 63.66%.

When production capacity expansion is affected by low pig prices throughout the year, losses are unavoidable. In fact, the Ministry of Agriculture and Rural Affairs has set the tone before. 2023 is the first full year of loss since 2014, with an average loss of 76 yuan for pig farmers throughout the year.

However, although the market continues to be sluggish, the pace of the company's production capacity expansion has not stopped. According to financial reports, the company continued to advance several projects during the reporting period, including investing in the establishment of a wholly-owned subsidiary “Guangdong Shennong Animal Husbandry Co., Ltd.” and investing in the construction of the Xinlong Pig Farm project of Guangxi Chongzuo Shennong Animal Husbandry Co., Ltd.

In a recent investor relations event, the company stated, “The company kept about 100,000 sows by the end of February, of which 85,000 sows can be raised. As the pig farm under construction is completed and put into operation one after another year, it is expected that the number of sows kept will reach 130,000 by the end of 2024. The company's target for listing is 2.5 million heads in 2024 and 3.5 million in 2025.”

It is worth mentioning that “ultra-low” farming costs may be the driving force for the Shennong Group to expand at the bottom of the cycle. According to public information, the company's average full cost in the first quarter was 14.5 yuan/kg, while the average full cost of farming in Muyuan Co., Ltd. in January-February was 15.8 yuan/kg.

It should be noted that due to continued expansion, the company's short-term liabilities and period expenses have increased to a certain extent. Financial reports show that at the end of the reporting period, the company's short-term loans were 335 million yuan, compared to 0 for the same period last year; at the same time, sales expenses, management expenses and financial expenses were 65 million yuan, 291 million yuan, and 870,000 yuan respectively, up 60.23%, 25.34% and 109.50%, respectively.

Looking ahead to the second half of 2024, the relevant listed pig companies may usher in a period of pressure relief. In an interview with a reporter from the Financial Services Association, some industry insiders said, “The supply and demand situation will gradually improve in the second half of this year, and relevant farmers are expected to achieve marginal to small profits.”

Also, according to information from the Ministry of Agriculture and Rural Affairs, the number of breeding sows nationwide was 39.92 million at the end of March, down 7.3% from the previous year. As the effects of removing production capacity of pigs gradually became apparent, the number of breeding sows, medium and large pigs, and the number of newborn piglets all showed a downward trend. The supply and demand relationship in the pig market will further improve in the second quarter, and pig farming may turn losses into profits.