Event: The company publishes its 2023 annual report. The company's revenue in '23 was 19.026 billion yuan, +11.99%; of these, feed, pig breeding, corn silage, agricultural product processing, and veterinary biological products contributed revenue of 6.492 billion yuan, 5,541 billion yuan, 3,021 billion yuan, and 2,183 billion yuan, respectively, of +17.37%, +8.05%, +1.56%, +24.01%, and 5.93% year-on-year, respectively; net profit to mother was -1,363 million yuan, year-on-year profit after deduction of profit to loss (profit of 302 million yuan for the same period in '22); net profit after deduction of net profit to mother was- $1,378 million, year-on-year change from profit to loss (profit of $314 million for the same period in '22). Among them, 23Q4's revenue was 4.32 billion yuan, +5.27% year-on-year; net profit to mother was 859 million yuan, which changed from profit to loss year-on-year (profit of 44 million yuan for the same period in '22).
The company's revenue continued to grow in '23, and poor pig prices weighed on performance. The main reason for the decline in the company's performance in '23 was the slump in the pig breeding industry, and pig prices continued to fluctuate at a low level. The company's comprehensive gross profit margin in '23 was 2.92%, -7.58pct year on year; the cost ratio for the period was 7.77%, -0.24pct year on year. The 23Q4 company's comprehensive gross profit margin was -1.09%, -14.17pct year on year; the cost ratio for the period was 9.95%, +1.93pct year on year.
The number of companies listed in '23 was +39%, and the target number of pigs released in '24 was 3 to 3.5 million. In '23, the company sold 2,818,800 pigs, +38.9% year over year; the estimated average sales price was 14.17 yuan/kg (-18.03%), and the average weight sold was 119.66 kg (+1.7% year over year). According to the monthly announcement, the 24Q1 company listed 647,200 pigs, +13.46% year over year; the average sales price was 13.35 yuan/kg (-6.9% year over year), and the average listing weight was 120.33 kg (-0.9% year over year). At the end of 23, the company's fixed assets, projects under construction, and productive biological assets were 5.334 billion yuan, 815 million yuan, and 321 million yuan respectively, +2.42%, +2.39%, and -11.59% compared to the end of 23Q3. In terms of cash flow and solvency, the company's balance ratio at the end of 23 was 52.75%, +0.7 pct year on year, and +5.69 pct at the end of 23Q3; the quick ratio was 0.62, -0.4 year on year. The company's target for producing pigs in '24 is 3-3.5 million heads, +6.5% to +24.3% over the same period last year.
The company's vaccine sales volume was +33% year-on-year, and R&D investment continued to support future growth. In '23, the company's pharmaceutical business accounted for 5.24% of revenue, with vaccine sales of 1,743 million heads (ml), +33.15%; among them, the swine blue ear vaccine was +72.55%, showing impressive performance; foot-and-mouth disease vaccine sales were -3.33% compared to the same period, putting a slight strain on pressure.
The company's gross profit margin for veterinary drugs was 62.57%, -1.51 pct year on year, fluctuating within the normal range. The company's R&D expenses in '23 were 257 million yuan, +43.58% over the same period; among them, the porcine circovirus type 2 - mycoplasma porcine pneumonia double fire extinguishing vaccine obtained a veterinary drug product approval number in August 23, the genetically-engineered subunit inactivated vaccine for porcine infectious pleural pneumonia is applying for approval, and the bivalent synthetic peptide vaccine for porcine foot and mouth disease OA is in the preliminary review stage for new veterinary drug registration. The company's new products are progressing smoothly, and the future can help the veterinary drug business grow. The company's target for animal vaccine sales in '24 is 2 billion milliliters (head share), +14.74% year-on-year.
Investment advice: The company is an integrated breeding enterprise with steady growth in feed and veterinary medicine businesses; at the same time, the company actively lays out pig breeding business and maintains a growing trend in sales volume. As pig prices are expected to rise, the company's performance may improve quarterly. However, considering that 24Q1 pig prices are still sluggish, we lowered our performance forecast for the full year of 24. We expect the company's EPS for 2024-2025 to be 0.5 yuan and 1.21 yuan respectively, corresponding to PE of 13 times and 6 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.