The company announced its 2024 quarterly report. In the first quarter of 2024, the company achieved operating income of 26.27 billion yuan, an increase of 8.57% year on year; net profit to mother was 2.38 billion yuan, a decrease of 98.56% year on year; deducted from non-return mother was 2.39 billion yuan, a decrease of 90.62% year on year.
Production costs are falling month by month, hitting the cost target of 14 yuan/kg for the whole year. In the first quarter of 2024, the company sold a total of 16.011 million heads (including 597,000 piglets and 107,000 breeding pigs), +16% compared with the same period. We estimate the average price of commercial pigs is 14.0 yuan/kg, and the full cost is 15.4 yuan/kg. The continued decline in the company's costs is mainly due to an increase in production performance. Due to the decline in breeding performance due to the winter epidemic and the small number of effective sales days during the Spring Festival, the complete cost of pig farming gradually increased to 15.8 yuan/kg from January to January 2024. The impact of the company's pig epidemic has gradually decreased since March. Along with improved production performance and lower feed prices, the company's full cost has dropped to 15.1 yuan/kg in March. The company hopes to achieve a cost target of 14 yuan/kg in the third or fourth quarter of 2024, and achieve an average cost target of 14.5 yuan/kg for the whole year, a reduction of 0.5 yuan/kg compared to the cost of 15 yuan/kg in 2023. Among them, feed price reduction contributed about 0.3 yuan/kg, and production management improvements are expected to contribute about 0.3 yuan/kg.
Production capacity reserves are sufficient, and operations are growing steadily. In terms of production capacity, by the end of March 2024, the number of sows the company was able to breed was 3.142 million, up 0.4% from the end of December 2023, and may reach 3.18 million to 3.2 million by the end of April. The company has set a production target of 66-72 million heads for the full year of 2024, an increase of 3.4% to 12.8% over the previous year. In terms of capital expenditure, the capital expenditure for the first quarter of 2024 was 4.8 billion yuan, mainly to cover the completed settlement portion. It is estimated that the capital expenditure in 2024 will be around 10 billion yuan, of which 3 billion yuan will be used for maintenance and renovation, and the remaining portion will be used for settlement of completed projects. In terms of cash flow, the company has sufficient capital reserves. In the first quarter of 2024, the company's monetary capital was 23.024 billion yuan, up 18.5% from the end of 2023, and the balance ratio was 63.59%, up 1.48 pct from the end of 2023. We believe this is due to the company saving low-interest loans during the downturn in the cycle.
Slaughter volume continues to increase, and operational efficiency continues to improve. In the first quarter of 2024, the company slaughtered 2.936 million pigs, an increase of 18% over the previous year. Up to now, 10 slaughterhouses have been put into operation, with a slaughter capacity of 29 million heads/year. In 2023, the company's capacity utilization rate has increased to 46%. With the increase in slaughter capacity utilization, the company's slaughter performance is expected to continue to improve.
Investment advice. Based on the company's cost performance for the first quarter of 2024 and the financial data of the 2023 annual report, we adjusted the 2024-2025 and introduced 2026 profit forecasts. The net profit for 2024-2026 is estimated to be 14.71 billion yuan, 24.46 billion yuan, and 30.76 billion yuan, respectively, +445%, +66.3%, and +25.8% year-on-year respectively. Currently, it corresponds to 2024 and 2025 PE 16.5x and 9.9x respectively. The company continues to maintain its leading cost position at the level of large-scale listing, and is expected to fully implement its performance and maintain a “buy” rating under the reversal of the cycle.
Risk warning: risk of major epidemics, risk of fluctuating pig prices, risk of raw material price fluctuations, cash flow risk, food safety risk.