The 2023 results are within the scope of the performance forecast. The 2023 and 1Q24 results are in line with our expectations of Makihara's announced results: -11.2% YoY to $110.86 billion, profit -132.1% YoY to $426 billion. 1Q24 revenue was 26.27 billion yuan, +8.6% year over year; profit -1.18 billion yuan to -238 billion yuan year-on-year. Profit declined in '23 due to low pig prices, and the results were in line with our expectations.
Development trends
The number of pigs released is growing steadily, and the slaughter business is rapidly expanding. 1) Pig breeding: The number of companies listed has been growing steadily in 23 years. Pig revenue in 2023/1Q24 was -9.6%/+9.8% year-on-year to $1082.2/25.71 billion yuan. In terms of sales volume, 2023/1Q24 was +4.3%/+15.6% to 6,381.6/16.011 million heads. Among them, commercial piglets/piglets/breeding pigs accounted for 97.6%/2.1%/0.3% in 2023, and the share of commercial piglets/piglets/breeding pigs in 1Q24 was 95.6%/3.7%/0.7%, respectively. 2) Slaughter business: In 2023, the company's slaughter revenue was +48.5% to 21.86 billion yuan, slaughter volume was +80% year-on-year to 13.26 million heads, average slaughter loss fell to about -70 yuan/head in 2023, and positive progress was made in market development, product structure and customer structure optimization.
The cost advantage continues to strengthen, and the balance sheet is expected to recover significantly this year. 1) Production management: The company's production efficiency and cost advantages are industry-leading. The overall survival rate in 23 years was about 85%, and the daily weight increased by 800 grams/head; the total cost of the 23-year/1Q24 company was about 15.0/15.5 yuan/kg; in '23, the company's improved production performance and reduced costs during the period contributed to a reduction of 0.9 yuan/kg. The cost fluctuated slightly due to the disturbance of the 1Q24 epidemic. We determine that the company's production basically returned to normal in April. 2) Financial status: At the end of 23/1Q24, the company's balance ratio was 62.1%/63.6%, and the stock currency balance was 194/23 billion yuan. Based on the company's cost advantage and the upward judgment of pig prices, we are optimistic that the company's 24-year balance will show a significant recovery.
I am optimistic about the company's “cost leading strategy” and steady growth in sales volume, and slaughter volume will add to long-term performance highlights.
1) Reducing breeding costs: At this stage, the company focuses on optimizing pig herd health and production management, such as strengthening disease purification, digging up potential nutrition technology, and optimizing organizational structure and talent incentives. We believe it will help the company strengthen the implementation of a cost-leading strategy and achieve a 24-year phased full cost target of 14 yuan/kg. 2) Growth: The company moved from rapid development to a stage of high-quality development. The current pig breeding capacity is 80 million heads. Based on the ability to breed 3.142 million sows at the end of March and the advantages of the company's reincarnation binary breeding system, we have determined that the 24-year production target of 6600-72 million heads is strongly supported, corresponding to a year-on-year growth rate of 3.4-12.8%. 3) Slaughter expansion: The company has built a slaughter production capacity of 29 million heads. We are optimistic that the company will develop meat sales channels, optimize product and customer structure, drive capacity utilization, and further release long-term performance flexibility.
Profit forecasting and valuation
Considering the company's cost improvement and pig price expectations, we raised 2024/25 net profit by 63.3%/24.5% to $142.6/16.96 billion. The current stock price corresponds to 17/14 times P/E in 2024/25, maintaining an outperforming industry rating. Considering the profit forecast adjustment and the company's average market capitalization center, the target price was raised by 21.7% to 56 yuan, corresponding to 21/18 times P/E in 2024/25, corresponding to 26% upward space.
risks
Pig prices and release volumes fell short of expectations; risk of the epidemic; raw material prices rose more than expected.