Performance summary: The company released its 2023 annual report. The company achieved revenue of 8.58 billion yuan for the full year of 2023, -9.2% year-on-year; realized net profit to mother of 600 million yuan, -789.3% year-on-year. Among them, Q4 achieved operating income of 2.41 billion yuan, -20.4% year-on-year; net profit to mother of 250 million yuan, or -681.8% year-on-year.
Comment: The number of pigs released has maintained a high increase, and low pig prices have led to losses. The main reason for the sharp decline in the company's profit over the same period last year is that as the production capacity of the company's pig farm continues to be put into operation, production volume has increased rapidly, but pig prices have continued to run low due to the relationship between supply and demand. In 2023, the company sold a total of 2.303 million pigs, +91.1% year-on-year; the average sales price was 15.0 yuan/kg, -23.6% year-on-year. The company slaughtered 4.4817 million pigs in 2023, a year-on-year increase of 29.38%. The current production capacity of the feed processing business during the reporting period was close to 800,000 tons; the number of poultry sold was about 11.312,400, and the slaughter volume was about 11.014 million.
Breeding sows have further accelerated their degeneration, and the breeding industry has reversed into a definitive trend. According to data from the National Bureau of Statistics, at the end of the first quarter of 2024, the number of pigs stored nationwide was 408.5 million, a decrease of 22.44 million heads compared to the same period last year, a year-on-year decrease of 5.2%, setting a new low in 4 years. Judging from the number of pigs stored, it has been declining for 2 consecutive quarters since the third quarter of 2023, and the decline is increasing rapidly. At the end of the first quarter of 2024, the number of breeding sows was 39.92 million, a year-on-year decrease of 7.3%, and the number of breeding sows hit a four-year low. The double bottom of production capacity and storage indicates that pig prices will maintain an upward channel in the future, and the profit cycle is expected to continue for a long time.
Production capacity has entered a period of rapid release, and cost reduction and efficiency have continued to be realized. In 2023, the company sold a total of 2.303 million pigs, +91.1% year-on-year. As of March 2023, the company is currently able to breed 150,000 sows, an increase of 20,000 over 130,000 at the end of 2023; it is expected to continue growing in the future. PSY sows have been further increased to around 25. There is still room for further improvement in production efficiency in the future as the company updates its breeding breed line.
The company plans to release 4 to 5 million pigs in 2024. Currently, it has a fattening capacity of 310-3.3 million heads, and is continuing to expand production capacity through the asset-light model of surrogacy. The company's full cost for the fourth quarter of 2023 was 16.5 yuan per kilogram. The 2024 cost target is an average of 16 yuan/kg during the year. Ways to reduce costs include measures such as falling feed prices and raw material prices, upgrading healthy ethnic groups, improving the level of production management, reducing feed waste, and improving survival rates.
The slaughter sector is growing steadily. The company slaughtered 4.4817 million pigs in 2023, a year-on-year increase of 29.38%.
The company's current slaughter capacity is about 14 million heads/year, and the target is 6 million pigs to be slaughtered in 2024. As the company's slaughter production can be further increased, performance is expected to continue to grow. The layout of the entire pig industry chain also effectively guarantees the stability of the company's efficiency.
Profit forecasting and investment advice. EPS is expected to be 1.11 yuan, 2.03 yuan, and 1.99 yuan respectively in 2024-2026, and the corresponding dynamic PE is 19/10/11 times, respectively. Considering the rapid decline in the company's costs, the listing growth rate is higher than that of peers. The growth rate is strong. A certain premium is given, PE is 23 times in 24 years, maintaining a “buy” rating, and the target price is 25.53 yuan.
Risk warning: the risk of an epidemic in the downstream farming industry; the risk that the number of pigs released falls short of expectations; the risk of product sales falling short of expectations, etc.