Event: The company released its 2023 Annual Report & 2024 First Quarter Report. The company's revenue in '23 was $110.861 billion, -11.19%; net profit to mother was 4.263 billion yuan, from profit to loss (profit of 13.266 billion yuan for the same period); net profit after deducting net profit of -4 billion yuan to mother was -4 billion yuan, from profit to loss (profit of 13.029 billion yuan for the same period). Among them, 23Q4's revenue was 27.892 billion yuan, or -36.68% year on year; net profit to mother was 2,421 billion yuan, which changed from profit to loss year over year (profit of 11.754 billion yuan for the same period). The 24Q1 company's revenue was 26.272 billion yuan, +8.57% year on year; net profit to mother was 2.379 billion yuan, increasing year-on-year loss (loss of 1,198 billion yuan for the same period); net profit after deduction was -2387 billion yuan, increasing year-on-year loss (loss of 1,252 billion yuan for the same period).
Affected by the slump in the pig farming market, the company's performance in '23 was under pressure. The main reason for the pressure on the company's performance in '23 was that pig farming was sluggish and pig prices continued to be low. The company's comprehensive gross profit margin in '23 was 3.11%, -14.39pct year on year; the cost ratio for the period was 8.64%, +1.52 pct year on year. The 24Q1 company's comprehensive gross profit margin was -2.5%, -4.38pct year on year; the cost ratio for the period was 9.57%, +0.28pct year on year.
The total cost of the company's pigs in '23 was about 15 yuan/kg, and it is estimated that 66-72 million heads will be released in '24. In '23, the company listed a total of 63.816 million pigs (+4.27% year over year), including 62.267 million commercial pigs, 1.367 million piglets, and 180,000 breeding pigs; it is estimated that the average sales price of commercial pigs was about 14.5 yuan/kg, -20.8% over the same period last year.
The company's pig breeding business achieved revenue of 108.224 billion yuan, -9.62% year on year; gross profit margin was 2.92%, -15.5pct year on year. In 23 years, the company has continued to improve the level of fine management. The average annual average cost of commercial pigs is about 15 yuan/kg. The 24Q1 company listed about 16.01 million pigs (+15.6% year over year), including 15.307 million commercial pigs, 597,000 piglets, and 107,000 breeding pigs; it is estimated that the average sales price of commercial pigs was about 14 yuan/kg, or -4.8% year over year. As of the end of 24Q1, the company's fixed assets, projects under construction, and productive biological assets were 110.637 billion yuan, respectively, -1.2%, -0.5%, and +14.19% at the end of 23; the company's balance ratio was 63.59%, +7.22pct year on year, and +1.48pct compared to the end of 23, with an overall slight increase.
At the end of 2023, the company had a farming capacity of about 80 million heads/year. In 2024, the company expects to release 66-72 million pigs, +3.4% to +12.8% year-on-year.
In '23, the company's pork products were +86% year-on-year, and the capacity utilization rate increased by 21pct. In 2023, the company slaughtered a total of 13.26 million pigs and sold 1.45 million tons of fresh and frozen pork products (+85.6% year over year); slaughter and meat products contributed 21,862 billion yuan in revenue, +48.54% year on year; gross profit margin 0.16%, +0.66 pct year on year.
In '23, the company continued to improve the operating efficiency of slaughterhouses that have already been put into operation. The capacity utilization rate of the slaughtering meat business increased from 25% in '22 to 46% in '23, and the average loss level was significantly reduced. At the end of 23, the company put into operation a total of 10 slaughterhouses, with a slaughter capacity of 29 million heads/year. In 24 years, the company will continue to make efforts in market development, channel construction, and customer demand development to further enhance the operational capacity and profitability of the meat slaughter business.
Investment advice: The company is a leader in the pig breeding industry and has leading pig breeding cost advantages. Considering the expected increase in pig prices, the company's pig breeding performance will improve significantly. We expect the company's EPS in 2024-2025 to be 2.92 yuan and 5.4 yuan respectively, corresponding to PE of 15 times and 8 times, maintaining the “recommended” rating.
Risk warning: risk of animal diseases and natural disasters; risk of fluctuations in raw material supply and price; risk of fluctuating pig prices; risk of policy changes, etc.