In 1Q24, net profit to mother decreased by 13 million yuan month-on-month, in line with our expectations
Shengnong Development announced 1Q24 results: 1Q24 revenue -7.1% year-on-year to 4.215 billion yuan, net profit to mother -62 million yuan, from profit to loss year-on-year, with a year-on-year decrease of 13 million yuan in losses. The performance is basically in line with our expectations. We believe that the price of white feather chicken was still low in 1Q24, but it rebounded month-on-month, causing the company to reduce losses month-on-month.
Development trends
The low price of chicken fluctuated and suppressed performance, and the cost of comprehensive meat production dropped significantly. 1) Poultry farming:
1Q24 chicken domestic and foreign sales revenue was -3.9%/-18.1% month-on-month to 2.98 billion yuan, of which sales volume was +10.8%/-18.9% to 294,000 tons. The year-on-year increase benefited from active mergers and acquisitions in 23 years, increasing production capacity to over 700 million birds. The month-on-month decrease was affected by 1Q24; the unit price was -13.3%/+1.0% to 10.2 yuan/kg, and chicken prices improved month-on-month; in addition, the company announced on April 15 that it benefited from improved management efficiency, lower raw material prices, and warmer weather. Constructed 24 Meat costs have declined significantly year over year. Overall, we estimate a small loss for the business in 1Q24. 2) Food processing: Revenue from meat products in 1Q24 was -4.4%/+3.4% to 1.92 billion yuan, of which sales volume was +11.0%/-5.6% to 81,000 tons, due to year-on-year expansion of production capacity and the impact of the Spring Festival; unit price -13.9%/+9.6% month-on-month to 23.8 yuan/kg. Considering the decline in the price of upstream chicken ingredients, we estimate that the profit of this business increased year over year.
Chicken prices and depreciation both improved month-on-month, and profitability rebounded month-on-month. 1) Gross profit margin: 1Q24 gross margin was -1.0/+0.3ppt to 7.4% month-on-month. We think it is mainly due to the year-on-year decline in the company's chicken sales price/month-on-month improvement, while the company's breeding costs have improved. 2) Expense rate: During the 1Q24 period, the cost rate was +1.6/+0.1ppt to 7.4% month-on-month. Among them, the main reason was that companies increased their own brand marketing efforts, and the sales expense ratio remained the same as +1.0pp/ month-on-month. 3) Impairment: 1Q24 asset and credit impairment losses were +161.3%/-32.4% month-on-month, which is a narrowing of the decline in chicken prices in 1Q24. 4) Under the combined influence, the net profit margin for 1Q24 was -3.4/+0.2ppt to -1.5% month-on-month, and profitability was under year-on-year pressure and increased month-on-month.
There is still room for an increase in chicken prices, and I am optimistic about the collaborative development of the entire breeding, breeding, and food industry chain. 1) In the short term, we expect supply-side white chicken terminals to shrink in 24 years, compounded by expectations of rising pig prices in 2Q24 on the demand side or boosting chicken consumption, and falling feed prices on the cost side. We expect the company's profit to grow this year. 2) In the long run, we are optimistic about the integrated and collaborative development of the company's entire industry chain. On the farming side, the company has anchored a production capacity target of 1 billion feather in 25 years and is actively expanding through mergers and acquisitions; on the food side, the total production capacity has exceeded 500,000 tons. Among them, the company expects 10 food plants to be put into operation this year, and the production capacity of 60,000 tons of high-price beef and lamb is expected to help the food business continue to grow; on the breeding side, the “Shengze 901PLUS” feed-to-meat ratio has improved markedly. We expect this product to improve internal breeding efficiency and is also expected to contribute to the increase in export sales performance.
Profit forecasting and valuation
The current stock price corresponds to 11/9 times P/E for 24/25. We kept our net profit of 1.75/ 1.99 billion yuan unchanged in 24/25, and maintained a target price of 23 yuan. The target price corresponds to 16 times P/E in 24 years, with 54% upward space. Maintain outperforming industry ratings.
risks
Risk of animal epidemics; risk of chicken price reversal falling short of expectations; risk of feed price fluctuations.