1Q24 results are in line with our expectations
Superstar Agriculture and Animal Husbandry announced 1Q24 results: 1Q24 revenue +6.2% year-on-year to 950 million yuan, net profit to mother +0.7 billion yuan year-on-year to -140 million yuan. 1Q24 pig prices showed an upward trend and were highly limited. As a result, the company's 1Q24 profit was still under pressure. Cost improvements led to a year-on-year decrease in net profit to loss. The company's performance was in line with our expectations.
Development trends
1Q24 The company's pig sales increased year-on-year, and remained flat from quarter to quarter. 1) Price side: The company uses commercial pigs and piglets as the main products, and 1Q24 pig prices were under slight pressure compared to the same period last month. According to Steel Union and Yongyi, the price of commercial pigs in 1Q24 was 14.54 yuan/kg, -3%/-1% year over year; the average price for 7 kg piglets was 380 yuan/head, -18%/+118% year over month. 2) Sales side: The cash received by the company from 1Q24 sales of products and services was basically the same as 920 million yuan year on year, down 13% month on month. Considering that 1Q24 pig prices fell slightly year on year and remained flat month over month, and the company shut down the commercial chicken business at the end of 23, we judge that the company's 1Q24 pig sales continued to grow year over year, or remained flat month on month.
Production efficiency and cost advantages were maintained, the financial situation was stable, and productive biological assets were basically flat month-on-month.
1) Pig breeding: pig breeding has stable production efficiency advantages, contributing to the company's cost advantage. We estimate that the full cost of the company's 1Q24 is about 16.0 yuan/kg, PSY 27-28, and that the company's production efficiency and cost level remain at the top of the industry. Furthermore, we have determined that the commissioning of the Dechang project may result in a phased increase in depreciation and expenses, and the cost of the project is expected to return to a steady downward trend after delivery. 2) Financial strength: The company's balance ratio at the end of 1Q24 was 62%. Compared with +2ppt at the end of 23, we estimate that if all convertible bonds were converted to shares, the balance ratio of the 1Q24 company would be about 53%; the 1Q24 company's operating cash achieved a net inflow of 0.1 billion yuan, contributing to the cash flow due to falling costs. 3) Productive biological assets and inventory: The company's productive biological assets at the end of 1Q24 were 380 million yuan, compared to -2% at the end of 23. We determined that the original value of newly recruited pigs decreased due to the company's cost reduction and efficiency, and the pace of production of superimposed sows was steady; the inventory at the end of 1Q24 was 17.1 billion yuan, +12% at the end of '23. We determined that the number of commercial pigs in the inventory increased due to the company's external purchase of piglets.
Low-cost and asset-light models build a foundation for growth, and launch or maintain relatively rapid growth. 1) Cost reduction and efficiency: The company has built a “seed+material+management+biosafety+environmental protection” five-star farming system. Excellent production and management experience is expected to be iteratively upgraded. We judge or continue to contribute to increasing efficiency and reducing costs to help achieve the annual cost target of 14.6-14.8 yuan/kg. 2) Stable capital: The company's asset-light leasing model creates a sound capital foundation; we judge that pig prices are expected to rise quarterly starting in 2Q24, and the company's low cost level may drive profit release. 3) Release growth: We judge that the Dechang project is expected to be fully produced in 2Q24, and the company's leased pig farm is also expected to be gradually delivered. Together, the two form an important support for the flexibility of the company's target release volume of 3.5 to 4 million heads in 24 years.
Profit forecasting and valuation
We maintained 2024/25 net profit of $44/97 billion. The current stock price corresponds to 40/18 times P/E in 2024/25, maintaining an outperforming industry rating. Maintain the target price of 43 yuan, corresponding to 49/23 times P/E in 2024/25, corresponding to 23.1% upward space.
risks
The risk of animal diseases such as non-plague; the risk that the company will be listed below expectations; the risk of rising feed costs.