Chicken seedlings lost a small amount and maintained a “buy” rating
Minhe Co., Ltd. released its quarterly report, achieving revenue of 522 million yuan (yoy -9.55%, qoq +18.16%) in Q1 of 2024, and net profit of 349.069 million yuan (yoy -161.39%, qoq +86.99%).
The current gap between supply and demand for white feather broilers in 2024 is expected to drive a reversal in the price of white feather chicken seedlings. We expect net profit to be 2.07/3.85/183 million yuan in 2024/25/26, corresponding EPS of 0.59/1.10/0.53 yuan. Referring to the 2024 Wind, a comparable company unanimously expects an average PE value of 13x. Considering that the company's newly built production capacity is released one after another, the chicken seedlings sales volume is expected to continue to grow and the prepared products business or gradually expand. This is expected to lead to an upward reversal in the company's profitability, giving the company 21x PE in 2024 with a target price of 12.39 yuan, maintaining a “buy” rating.
Prices and costs are under pressure, and chicken seedlings lose a small amount
24Q1's chicken seedlings business achieved revenue of 219 million yuan, and chicken products and other businesses achieved revenue of about 326 million yuan, -21% and +9%, respectively. We analyzed that the company's Q1 loss was mainly brought about by the chicken seedlings business. The 24Q1 company sold 62.2 million white feather broiler seedlings, a year-on-year decrease of -9%. On the one hand, sales volume declined because the 2022 chicken hatch-off period spanned December 2023 and January 2024. On the other hand, it may be related to adjustments in listed companies' production plans, or reflect a contraction in the supply of high-quality chicken seedlings in the industry; the average sales price was about 3.53 yuan/feather, down about 13% year on year. At the same time, we estimate the cost of the company's single feather chicken seedlings or the cost of purchasing chicken on behalf of parents There is an upward trend due to increases, etc. Under the influence of the decline in the price of chicken seedlings combined with rising costs, we estimate that the company lost about 0.3 to 0.7 yuan for single chicken seedlings, turning into a loss over the same period last year.
Expand the main business, chicken seedlings, and extend downstream food
The company raised an additional 100 million birds/year commercial chicken production capacity and 30,000 tons of cooked food projects in 2021 and is expected to be put into operation by mid-2024. In 2023, the volume of prepared products was obvious. Weifang Minhe's production capacity of 30,000 tons was already at full capacity. The online channel for chicken products (mainly sales of prepared products) achieved revenue of 250 million yuan, +180% year-on-year, and a gross profit margin of 32%, driving the company's overall sales revenue for chicken products to increase markedly, and gross profit changed from loss to profit.
At the same time, in terms of food sales channels, Minhe set up the Sun Company Hangzhou Minyuehe in Hangzhou to specialize in selling cooked food on e-commerce platforms. Currently, they have stores on Tmall and Douyin, and the sales momentum is good. In terms of products, products such as pistol legs pioneered by the company were quite successful, and continued to launch potentially explosive models such as Tomahawk chicken legs. Sales volume continues to be released, which is expected to drive the company's food business to gradually become profitable.
The contraction in supply is expected to gradually materialize. Commercial surrogate broiler prices may decrease 23% year-on-year in 2022. We expect the current supply and demand gap in 2024 to reverse the upward trend in the price of white feather chicken seedlings, usher in a long cycle this year and next two years, or drive the price of the company's commercial chicken seedlings to rise. The company's profit growth can be expected.
Risk warning: chicken price rise/cost falling short of expectations, sudden large-scale bird flu outbreaks, etc.