The 24Q1 loss margin narrowed and the “gain” rating was maintained
Tang Renshen released its 2023 Annual Report and 2024 Quarterly Report. In 2023, revenue of 26.9 billion yuan (yoy +1.55%) was achieved, with net profit of 1,526 billion yuan (year-on-year loss); of these, Q4 achieved revenue of 6.079 billion yuan (yoy -22%, qoq -18%) and net profit of 615 million yuan (year-on-year loss, month-on-month increase).
In Q1 2024, revenue of 4.88 billion yuan (yoy -25%, qoq -20%) was achieved, and net profit to mother was 198 million yuan (year-on-month loss reduction). We expect the company's 2024/25/26 net profit to be -5.42/10.02/988 million yuan, respectively, and the corresponding BVPS is 3.46/4.16/4.84 yuan, respectively. Referring to the 2024 comparable company Wind's consistent forecast of 1.26x PB, considering that the company's steady feed business and pig breeding costs are expected to continue to improve, we will give the company 1.8 x PB in 2024, corresponding to a target price of 6.23 yuan, maintaining the “increase in holdings” rating.
In 2023, there was a high increase in pig production, and breeding losses were huge
In 2023, the company's feed sales grew steadily, and revenue and profits were basically stable. The pig farming business lost a lot due to continued weak pig prices and the company's costs were still relatively high. 1) Pig farming: In 2023, the company listed 3.71 million pigs, +72% over the same period last year, of which fat pigs accounted for about 91%. We estimate that the company's pig farming business lost about 1.2 to 1.6 billion yuan in 2023, the average loss was about 350 to 400 yuan/head, and the total cost of fat pigs was about 18 to 19 yuan/kg. 2) Feed: In 2023, the company sold 7.08 million tons of feed (including domestic sales), +15% year-on-year, achieving sales revenue of about 201 billion yuan. The gross margin of the feed business is about 6.5%, a slight increase over the previous year. We estimate that the gross profit per ton of feed is about 150 to 200 yuan, and the feed business may achieve a profit of about 0.5 to 150 million yuan, which is basically the same as the previous year. 3) Meat products: In 2023, the company sold 100,000 tons of meat products, +65% over the same period last year. We estimate that the company's meat business may lose a small amount.
Driven by cost improvement, 24Q1 pig farming reduced losses
24Q1 The company reduced losses compared to the previous month or mainly benefited from losses in the pig farming business driven by cost improvements. The 24Q1 company listed 950,000 pigs, +21% year over year. We estimate that the average sales price of fat pigs is about 13.5 to 14 yuan/kg, or about 5% to 6% year-on-month. It is estimated that the average loss of raw pigs is about 220 to 270 yuan/head. Losses were reduced from the same period last year, or mainly benefited from the company's improvement in pig raising costs. We estimate that the total cost of 24Q1's fat pigs is about 16 to 16.5 yuan/kg. The year-on-year decrease may be more than 2 yuan/kg, and the month-on-month decrease may be about 0.5 to 1 yuan/kg.
24Q2 pig prices are expected to rise steadily, and the company's pig farming continues to improve
Domestic breeding sows showed an accelerated trend of degeneration at 23H2 and continued degeneration in 24Q1, which may be expected to drive the pig cycle to reverse in 2024 and enter a relatively continuous profit period in the pig breeding industry. At the same time, under pressure from the industry's cash flow, sow production capacity declines or lags behind the rebound in pig prices, sow production capacity, or continued elimination, which is expected to drive a high degree of cycle reversal and sustainability exceeding expectations. The superposition company continues to strengthen breeding management, reduce the cost of feed ingredients, etc., or drive continuous improvement in pig farming costs, and the company's pig farming business may continue to improve.
Risk warning: the number of pigs released fell short of expectations, pig prices fell short of expectations, large-scale animal diseases broke out, etc.