Incident: On April 27, the company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 110.86 billion yuan, -11.2% year-on-year; realized net profit of 4.26 billion yuan, or -132.1% year-on-year. 2024Q1 achieved operating income of 26.27 billion yuan, +8.57% year over year; realized net profit to mother of 2.38 billion yuan, -98.6% year over year.
Comment:
Production capacity continues to rise steadily under a high base, which may drive performance growth. The company released a total of 63.816 million pigs in 2023 (including 1.367 million piglets and 180,000 breeding pigs), +4.27% over the same period; 2024Q1 sold a total of 16.011 million pigs (including 597,000 piglets and 107,000 breeding pigs), +15.6% over the same period. Due to the high price of piglets, the number of piglets sold in Q1 increased significantly, +42.8% over the same period last year. As of the end of March 2024, the company was able to raise 3.142 million sows, an increase from the end of 2023 (3.129 million heads). In the phase where the overall production capacity of the industry continues to decline, the number of sows owned by the company is growing steadily, and it is expected that profit growth will be achieved as pig prices rebound.
The phased cost increases caused by the epidemic have been fixed, and the downward trend is expected to continue in the future. In 2023, under the influence of the non-plague epidemic, the company's farming side costs still improved significantly compared to the previous year. The average full cost for the whole year decreased by 0.7 yuan/kg to about 15 yuan/kg. Due to the continuation of the impact of the outbreak at the end of 2023, combined with factors such as the reduction in sales days due to the Spring Festival holiday in early 2024, farming side costs gradually increased to 15.8 yuan/kg in January-January 2024. The impact was significantly improved in March, and the full cost was reduced to about 15.1 yuan/kg. It is expected that with the improvement of production efficiency and the replication and promotion of excellent farm management models, the company's overall farming costs will maintain a downward trend.
Production capacity in the slaughter sector continues to increase, and it is expected to develop in conjunction with the farming side. In 2023, the company slaughtered 13.26 million pigs, about +80% year on year; capacity utilization rate +21pct to 46%; business gross margin +0.66pct to 0.16%. By the end of 2023, a total of 10 slaughterhouses had been put into operation, with a total production capacity of 29 million heads/year, and the sales network had expanded to 20 provincial administrative districts. Currently, all pigs in the company's business segment are provided by its own breeding division, and downstream customers are mainly composed of B-side customers such as large agricultural markets, supermarkets, and new retail.
While deepening the value of pig products, the slaughter and processing business provides the breeding side with the latest consumer demand trend data, and achieves collaborative development through joint management.
Profit forecast and investment rating: We expect the company to achieve revenue of 1420.30, 1643.20, and 180,200 billion yuan in 2024-2026, and realized net profit of 119.38, 25.735, and 26.552 billion yuan respectively, corresponding to 2025-2026 PE of 9.44 and 9.15x, maintaining the “recommended” rating.
Risk warning: risk of fluctuations in pig prices; risk of epidemic diseases in the breeding industry; production capacity release falls short of expectations.