Incident Overview: The company released its 2023 annual report and 2024 quarterly report on April 29. It achieved revenue of 5.63 billion yuan, +12.5% year over year; realized net profit of 1.20 billion yuan, -1,448.7%; released a total of 3.01 million pigs, +75.2% year over year, of which 3.121 million heads of live pigs were sold, +74.4% year on year, sold 86,000 heads of meat, 620,000 tons of butchered meat, +20.3% year on year. 2024Q1 achieved revenue of 1.43 billion yuan, +17.0% year-on-year, and -18.7% month-on-month; realized net profit of 250 million yuan, -11.8% year-on-year and +44.0% month-on-month.
The number of pigs released is growing rapidly, and production capacity reserves are abundant. 2024Q1 listed a total of 924,000 pigs, +48.5% year over year, of which 878,000 heads were sold as live pigs, +1.6% year over year, and 45,000 heads were sold as meat products, +106.4% year over year. In terms of pig production capacity, the company's pig production capacity expanded in an orderly manner. Xinwufeng delivered 7 sow farms, added 51,600 new sows, delivered 27 fat pig farms, and added 694,600 heads of fat pig production capacity per year. By the end of 2023, 209,900 sows could be bred. In terms of the layout of the pig industry, the company has a strategic layout around “two wings in one”. It is based in Hunan Province and extends both hands to the Guangdong-Hong Kong-Macao Greater Bay Area and the Yangtze River Delta region. At the same time, the company entered the terminal market by building “Nongfeng” and “U Fresh” meat brands to provide consumers with high-quality pork products to meet people's needs for healthy eating.
Feed self-sufficiency has been significantly enhanced, and the scale of the slaughter market continues to increase. Feed: 2024Q1 sold 40,000 tons of feed, +156.8% year-on-year. In 2023, the company's several feed production capacity projects were officially put into operation: Dongan Xinwufeng Biological Feed Co., Ltd.'s feed factory project with an annual output of 240,000 tons was officially put into operation, completed the acquisition of Hunan Wangling Wu Zero Feed Co., Ltd., and added 120,000 tons of feed production capacity per year. In addition, Tianxin Seed Industry, together with the 180,000 ton feed mill project in Lianshan Industrial Park and the 240,000 ton feed factory project in the Hanshou High-tech Zone, have completed construction and trial production. Slaughtered meat: 2024Q1 achieved sales volume of 16,000 tons of slaughtered meat, or +24.9%. In terms of slaughter production capacity, Hunan Changzhu Tan Guanglian Pig Trading Market Co., Ltd., the company's pig slaughter division, has the capacity to slaughter and process 700,000 pigs in a single shift every year. At the same time, the company focuses on slaughter and hot fresh white strip business, comprehensively deepens large-scale meat and vegetable wholesale markets, strengthens brand building, and achieves market share growth and slaughter volume.
Raising funds for the company's development, and the capital advantage is obvious. In 2023, the company raised 1.55 billion yuan in targeted funding, which can further consolidate the pig breeding system and enhance the strength of the company's pig industry. In addition, the company can obtain the capital needed for development through indirect financing methods, and has received credit support from many banks. The company's total credit limit is more than 5 billion yuan.
Investment advice: We expect the company's 2024-2026 net profit to be 3.12, 6.23, and 893 million yuan, respectively, and EPS 0.25, 0.49, and 0.71 yuan, respectively, and the corresponding PE is 35, 18, and 12 times, respectively.
The pig cycle is expected to see an important reversal in the second half of 2024. The company has sufficient production capacity reserves and high flexibility in listing. The future will benefit fully from the upward trend in the industry cycle and maintain a “recommended” rating.
Risk warning: the risk of animal diseases, the risk of fluctuations in raw material prices, and the rebound in pig prices fell short of expectations.