Losses were drastically reduced in 24Q1. The company's pig farming costs may still have the company's net profit of 401 million yuan in 2023, turning losses year-on-year; cost expansion's potential asset impairment losses were recovered, and the company's 24Q1 net profit to mother decreased sharply year-on-year and month-on-month. Under multi-dimensional advantages such as reduced feed costs, we expect that the company's full farming costs will still have room to expand. The company is expected to achieve net profit of 355 million yuan, 1,597 million yuan, and 2,066 billion yuan in 24-26, and BVPS of 8.67, 11.46, and 15.14 yuan respectively. Referring to the average valuation value of comparable companies in 2024, considering the company's financial stability and outstanding farming cost advantages, the company was given 5.49XPB in 2024, corresponding to a target price of 47.60 yuan, to maintain a “buy” rating.
Pig prices were weak and depreciated. The company's profit in 2023 turned into a year-on-year loss. The company achieved operating income of 3.89 billion yuan in 2023, an increase of 17.8% over the previous year; realized net profit to mother - 401 million yuan, which turned into a year-on-year loss. This is mainly due to the weak operation of pig prices in 2023 and the total impact of the company's estimated asset impairment and credit impairment losses of 185 million yuan. Among them: 1) pig breeding: achieved revenue of 2.09 billion yuan, +19.4% year over year, gross profit margin 2.46%, year-on-year -19.5 pct; 2) slaughter and deep food processing:
Achieved revenue of 1.23 billion yuan, +38% year-on-year, gross profit margin of 3.9%; year-on-year -13.2 pct, or the impact of the decline in production capacity of deep-processing plants and the decline in gross margin of frozen meat; 3) Feed: achieved revenue of 498 million yuan, -12.5% year over year, gross profit margin of 13.6%, and +1.68 pct year over year.
Cost expansion potential combined with asset impairment losses recovered. 24Q1 drastically reduced the company's operating income of 1.08 billion yuan year-on-year in 24Q1, an increase of 20.8% year-on-year, and realized net profit to mother of 3.57 million yuan. Compared with the net loss of 106 million yuan in 2023Q1 and 184 million yuan in 2023Q4, there was a significant year-on-year reduction in losses from both a year-on-year and month-on-month perspective. Or the main system: 1) Driven by multi-dimensional advantages such as reduced feed costs and optimization of the company's breeding indicators, the company's total farming cost dropped from about 16.2 yuan/kg in 2023Q1 to about 16.0 yuan/kg in 2023Q4, and then to about 14.6 yuan/kg in 2024Q1. Driven by continued cost expansion, the company reduced losses year-on-year and month-on-month in pig farming; 2) Combined with estimates of future pig prices, the company recovered 46 million yuan in asset impairment losses in 24Q1.
Target price is 47.60 yuan, maintaining a “buy” rating
The company's ability to control costs is outstanding. It is expected that along with the gradual consumption of high-priced feed in the past and the gradual release of high-priced piglets, the company's 24Q2 breeding costs may still have room to decline. We maintained the company's profit forecast of 355 million yuan and 1,597 million yuan, and added a 2026 profit forecast of 2,066 million yuan, referring to the comparable company's average valuation of 3.62 XPB in 2024. Considering the company's financial stability and outstanding farming cost advantages, we gave the company 5.49XPB in 2024, corresponding to a target price of 47.60 yuan, maintaining a “buy” rating.
Risk warning: the number of pigs released falls short of expectations, pig prices fall short of expectations, repeated non-plague outbreaks, large-scale animal disease outbreaks, the pace of expansion does not match market demand, etc.