Incident: On April 27, the company released its annual report for '23 and its quarterly report for '24. For the full year of '23, the company achieved revenue/net profit of 6.998/-188 million yuan, -0.14%/-243.94% year-on-year, respectively. The basic EPS was -0.43 yuan. In 23Q4/24Q1, we achieved revenue of 1,698/1,361 billion yuan, +0.16%/-11.09% YoY; realized net profit to mother of -1.02/0.07 billion yuan, +8.34%/+17.40% YoY.
Extreme weather and weak consumption are dragging down the eel business, and the gross margin of the feed business is expected to improve in '24. The company's eel business produced 3,461 tons of fish in '23, or -43.28%. The reason was (1) climatic factors such as cold spring, extreme summer temperatures, and frequent typhoons affected the fish rhythm; (2) large seeding volume in the past two years but the construction of breeding bases was not fully supported, and farming density was high; (3) weakening downstream consumer demand had a great impact on eel prices and fish production. The company sold 130.38/215,600 tons of livestock and poultry feed/special water materials in '23, +4.43%/+4.52; the unit sales price was 3405/11072 (yuan/ton), -0.82%/+6.98% YoY. The company's feed sales were stable year-on-year in '23, but the gross margin of the feed business declined slightly due to high prices of upstream raw materials and widespread losses from downstream farmers. It is expected that the gross margin level of the feed business will recover in '24 with the recovery of the downstream farming industry.
Gross margin declined significantly in '23, and gross margin recovered slightly in 24Q1. In '23Q4/24Q1, the company's gross margin was 7.51%/5.19%/9.51%, -2.07pct/+4.30pct/+1.23pct year-on-year. The decline in gross margin in '23 was mainly affected by a combination of factors such as the slowdown in fish production in the aquaculture business and the decline in gross margin in the feed business. The 24Q1 company's eel production increased month-on-month, which helped restore gross margin. The 23/23Q4/24Q1 management expenses rate was 3.33%/3.70%/2.66%, +0.98pct/+1.09pct/+0.18pct year-on-year. The reason is that equity incentive costs increased due to the termination of the 22-year employee stock ownership plan in '23; the increase in administrative staff led to an increase in labor costs. The financial expense ratio was 2.32%/2.99%/2.28%, +0.82pct/+0.15pct/+0.90pct year-on-year. The reason is that the company maintained a high level of business and increased borrowing, which led to an increase in net interest expenses.
Investment advice: Based on 23 years of operating conditions, we have lowered our profit forecast. The estimated net profit for 2024-2026 is 322/567/ 848 million yuan, +271.9%/+75.8%/+49.6% year-on-year, corresponding PE 19.8/11.3/7.5 times. The gross margin of the company's feed business is expected to recover in '24; the pace of fishing in the eel business will accelerate, and the farming and food businesses are expected to break out of their trough and maintain a “buy” rating.
Risk warning: Feed business expansion falls short of expectations, insufficient fishing of eel fry, cost pressure, risk of epidemic diseases, etc.