Incident: On April 26, 2024, the company released its 2023 annual report and 2024 quarterly report. The company achieved operating income of 3,891 billion yuan in 2023, +17.8% year-on-year; realized net profit of 401 million yuan, or -257.0% year-on-year. 2024Q1 achieved operating income of 1,082 million yuan, +20.8% year over year; realized net profit to mother of -36 million yuan, +96.6% year over year.
Comment:
Closed loop layout of the whole industry chain, collaborative development of various businesses, enhancing the company's core competitiveness. With the official commissioning of Yunnan Chengjiang Shennong Food Co., Ltd., the company's business in 2023 covers pig breeding and feed processing, slaughter and food processing business upstream and downstream of the industrial chain, achieving collaborative cooperation and common development of the entire industry chain. Among them, pig breeding business accounts for more than 50% of total revenue. The increase in 2024Q1 pig sales led to a year-on-year increase in operating income, and due to the recovery in pig prices, the company planned to reduce the price of pigs to prepare for resale and return to about 88 million at the end of the previous year, resulting in a sharp increase in net profit from the same period.
Pig production capacity continues to increase, and breeding costs are steadily declining. In 2023, the company released 1,520,400 pigs (of which 1.20.78 million were exported, accounting for 79.4%), +63.7%; 2024Q1 sold a total of 496,900 pigs (of which 420,300 were exported, accounting for 84.6%), or +40.96% compared to the same period last year.
By the end of the first quarter of 2024, the company was able to breed about 90,000 sows. It is expected that with the smooth delivery of new pig farms in Guangxi and Yunnan this year, the storage volume will increase to about 130,000 at the end of the year. The continuous sharp increase in sales volume boosts the company's revenue. It is expected that profit growth will be achieved as pig prices rebound in the future. In terms of costs, under the influence of the non-plague epidemic, the company's farming costs declined steadily throughout 2023, and the downward trend continued until the first quarter of 2024. In 2023, the company's average breeding cost was about 15 yuan/kg, 2023Q4 breeding cost was about 14.5 yuan/kg, and 2024Q1 breeding cost dropped to about 13.5 yuan/kg. The main reasons may be: 1) the price of raw materials dropped drastically; 2) the company's pig distribution structure continued to improve; 3) the health and capacity utilization rate of the company's pigs continued to improve.
It has strong R&D and innovation capabilities. Due to the decline in raw material prices, the gross margin of the company's feed business was +1.68pct to 13.58% in 2023, which contributed greatly to the company's profit. The company's feed business sold 575,000 tons throughout the year, of which 466,000 tons were sold within the group, accounting for 81.1%. At the same time, the company launched the “Shennong core” products “core” and “core” to reduce the intestinal stress rate of pigs with the latest R&D technology, demonstrate the company's technical research and development capabilities, and stabilize the company's position in the increasingly competitive feed processing industry.
Profit forecast and investment rating: We expect the company to achieve revenue of 63.98 billion, 92.29 billion yuan and 9.889 billion yuan respectively in 2024-2026, and realized net profit of 4.54, 13.64, and 1,145 billion yuan respectively. The corresponding PE for 2025-2026 is 13.89 and 16.54x, maintaining the “recommended” rating.
Risk warning: Production capacity release falls short of expected risk; risk of pig price fluctuations; risk of epidemic disease in the breeding industry.