Event: The company released its 2023 Annual Report & 2024 First Quarter Report. The company's revenue in '23 was $3,891 billion, +17.76% year-on-year, of which farming, slaughter, food processing, and feed contributed $2,095 million, $1,232 million, and 498 million yuan respectively, +19.42%, +38.06%, and -12.51% year-on-year; net profit to mother was -401 million yuan, from profit to loss ($255 million in the same period in '22); net profit after deducting net profit to mother was -397 million yuan, year-on-year change from profit to loss ($264 million in the same period in '22). Among them, 23Q4 had revenue of 1,022 million yuan, -17.08% year on year; net profit to mother was 184 million yuan, which changed from profit to loss year over year (224 million yuan for the same period in '22). The 24Q1 Company's revenue was 1,082 million yuan, +20.82% year on year; net profit to mother was -0.04 billion yuan, and losses narrowed year on year (-106 million yuan for the same period in '23); net profit after deducted to mother was 06 billion yuan, turning a year-on-year loss into profit (-105 million yuan for the same period in '23).
The company's revenue grew & profit declined in '23, and losses narrowed year-on-year in 24Q1. The decline in the company's performance in '23 was mainly due to the continued slump in pig farming. The company's comprehensive gross profit margin in '23 was 4.38%, -14.14pct year on year; the cost ratio for the period was 9.65%, +0.98pct year on year. The 24Q1 company's comprehensive gross profit margin was 6.00%, +4.90pct year on year; the cost ratio for the period was 9.18%, +1.05pct year on year.
Pig sales were +64% year over year in '23, and 2.5 million heads are expected to be released in '24. In '23, the company sold a total of 1,520,400 pigs, +63.66% year over year, of which 1.2 million heads were sold abroad and 312,600 heads were sold internally; revenue was 2,092 billion yuan, +19.55% year over year; estimated average sales price was 1,376 yuan/head, -26.95% year over year; gross margin was 2.61%, -19.61 pct year on year. At the end of 23, the company kept 1.0429 million pigs, +47.3% over the same period last year, of which the cooperative breeding model accounted for about 63%. The company's pig breeding business is mainly distributed in the three provinces of Yunnan, Guangxi and Guangdong. In the future, the company will continue to consolidate the production base in the Yunnan War Zone and strengthen production capacity development and cost control capabilities in the two Guangzhou regions. In terms of cost, benefiting from the reduction in pig breeding costs and feed costs, the company's breeding costs have declined steadily since 23H2. In January-January '24, the company's full cost was 14.7 yuan/kg. As the cost control effect of the two regions became apparent, the total cost in the region was 0.5-1 yuan/kg lower than that of the Yunnan region in '23. The total cost of 24Q1 in Guangxi was about 14 yuan/kg, and with the commissioning of the Guangxi Daxin Feed Factory in '24, there is still room for feed costs to drop. In terms of production capacity, as of the end of February '24, the company kept about 100,000 sows, of which 85,000 were capable of breeding. It is estimated that the number of sows kept will reach 130,000 by the end of '24. Based on the pace of expansion of sow storage, the company set a target of 2.5 million pigs in 24 years (about +64% year over year), and strive to release 3.5 million pigs in 25 years (about +40% year over year). Considering the subsequent increase in pig prices, the profitability of the company's breeding business can be expected to increase.
Actively set up slaughter and food processing businesses, with revenue +38% year-on-year in '23. In '23, the company's slaughter and food processing business achieved revenue of 1,232 billion yuan, +38.06% year on year; gross margin was 3.90%, -13.18 pct year on year.
In terms of slaughter, the company slaughtered a total of 1.7656 million pigs in '23, or +22.23% year over year; exported 34,800 tons of white striped pork, +91.21% year over year. While ensuring a steady increase in slaughter volume, the company is proceeding in an orderly manner with preliminary preparations for the construction of a slaughterhouse where Luliang Shennong Food Co., Ltd. slaughters 500,000 heads a year. In terms of deep food processing, Yunnan Chengjiang Shennong Food Co., Ltd.'s food deep processing project with an annual output of 24,000 tons was put into operation in April 23. Production and sales have been growing steadily month by month. In 23, it has achieved full coverage of B-side distribution channels in Yunnan Province. The C-side channel is being deployed at an accelerated pace, and the construction of market channels in Guizhou, Sichuan and Chongqing has also been completed. With the gradual release of the company's slaughter and deep food processing capacity, it is expected that collaborative development will be achieved.
Investment proposal: The company focuses on the pig industry chain to form a complete industrial chain integrating feed processing and sales, pig breeding and sales, pig slaughter, and fresh pork food sales. Benefiting from the subsequent improvement in pig price expectations, the company's performance may improve. We expect the company's EPS in 2024-2025 to be 1.40 yuan and 2.87 yuan respectively, corresponding PE will be 26 and 13 times higher, maintaining the “recommended” rating.
Risk warning: risk of fluctuations in pig and pork prices; risk of price fluctuations of major raw materials; risk of animal diseases; risk of natural disasters; risk of food safety; policy risk, etc.