24Q1 sales volume continues to grow, maintaining a “buy” rating
Shengnong Development released a quarterly report. In Q1 of 2024, revenue was 4.215 billion yuan (yoy -7.10%, qoq -7.56%), and net profit of 61.92 million yuan (yoy -169%, qoq +18%). The year-on-year decline in revenue and profit was mainly affected by the decline in sales prices of raw chicken and prepared products. The company continued to increase production capacity, and sales of raw chicken and prepared products were +11% year-on-year in 24Q1. We anticipate net profit of RMB 18.15/28.43/2561 billion yuan in 2024/25/26, of which the chicken and parent-generation chicken seedlings and prepared products businesses are expected to make profits of about 1.5 billion yuan and 300 million yuan respectively in 2024. Referring to the comparable company Wind, we agreed to expect about 11x and 15x PE, respectively. Considering the gradual increase in promotion of Shengnong's parent chicken seedlings and the C-side net interest rate or continuous improvement, we gave Shengnong's 2024 raw meat and parent's chicken seedlings business profit 15x PE, and the prepared food business profit was 25x PE, corresponding to a target price of 23.63 yuan, maintaining a “buy” rating.
Profitability of prepared raw chicken is divided, and sales are growing steadily
On the revenue side, in 24Q1, Shengnong raw chicken (before offset) and prepared products achieved sales revenue of 3 billion yuan and 1.9 billion yuan, respectively, -3.87% and -4.43% year-on-year, respectively. Among them, raw chicken sales volume and sales price were +11% and -13%, respectively, and sales volume and sales price of prepared products were +11% and -14%, respectively. On the profit side, we estimate that the raw chicken sector may have a loss of 200 to 300 million yuan, an increase in losses over the previous year, mainly due to the decline in chicken prices greater than the decline in costs; the prepared food sector's profit was about 140 to 240 million yuan, an increase of about 7 million yuan over the previous year, mainly benefiting from the increase in sales volume. At the same time, the company's inventory price drop losses in 24Q1 increased by about 42 million yuan year on year (mainly due to the price drop of chicken), and sales expenses increased by about 32.42 million yuan year on year (mainly due to increased marketing efforts for its own brand), which also dragged down overall profits. It is worth noting that under the influence of factors such as improved management efficiency and lower feed raw material prices, the 24Q1 company's comprehensive meat production cost decreased significantly year on year, and we estimate that it decreased by about 9% year on year. At the same time, the company continued to explore the comprehensive advantages of self-developed chicken breeding performance, and the overall efficiency improvement of 24Q1 broiler breeding contributed more than 90 million yuan in comprehensive benefits.
Looking ahead, the company's profit is expected to improve significantly as chicken prices pick up.
Self-built and acquired dual drivers bucked the trend and expanded production capacity. In 2023, Shengnong continued to buck the trend and expand production capacity, built a number of ancestral and parent-generation chicken breeding farms and commercial broiler farms, and acquired production capacity such as Shengyue Farming and Animal Husbandry and Anhui Sun Valley in 2023. Currently, the company's own white feather chicken breeding capacity exceeds 700 million birds; in terms of food production capacity, the company's total production capacity of the nine food plants increased by 20,000 tons, and the optimization of superimposed production lines increased factory production capacity by 20% in 2023, 2024 The 10th food factory is expected to add another 60,000 tons after completion Production capacity. The total production capacity of the company's built and deep-processing food under construction exceeds 500,000 tons. In terms of parent breeding chickens, in 2023, Shengnong's ancestral chicken breeding volume accounted for about 20% of the country's total. They sold 9.01 million sets of chicken chicks raised by their parents throughout the year, and successfully iteratively developed “Shengze 901 Plus” based on the “Shengze 901,” which improved indicators such as the feed-to-meat ratio.
The parent breeding chicken export business is expected to gradually contribute a certain amount of incremental profit to the company.
Risk warning: chicken price rise/cost falling short of expectations, sudden large-scale bird flu outbreaks, etc.