The 2023 results are within the scope of the performance forecast. The 2023 and 1Q24 results are in line with market expectations of +0.1% year-on-year revenue of +0.1% to $141.7 billion, and net profit/deducted non-net profit to mother of +1.771/3.72 billion yuan to $25/4.61 billion. The company's net profit to the mother reversed the loss due to the company's transfer of 51%/67% of the shares in the white feather meat and poultry/food processing business and recorded an investment income of 5.2 billion yuan. After deducting the pressure from non-net profit, the company accrued asset impairment losses of 1.6 billion yuan due to low livestock and poultry prices in 23 years. 1Q24 revenue was 23.9 billion yuan, -30% year-on-year; net profit to mother was 1.9 billion yuan, year-on-year - 300 million yuan. The performance was in line with market expectations.
Development trends
Sales in the feed business were steady, tonnage profits improved, and the pig farming business contracted slightly. 1) Feed business: The company's feed sales remained steady, and the tonnage profit improved markedly. Revenue in '23 was +3% year over year to 81.3 billion yuan, export sales remained flat at 21.13 million tons year on year, and net profit for poultry/pig/aquatic product tons was +36%/+14%/+30% year-on-year.
2) Pig breeding: Revenue declined year-on-year due to adjustments in the volume and price rhythm. Revenue in '23/1Q24 was -5%/-12% YoY to 21.363 billion yuan, sales volume +21%/-3% YoY to 1768/4.56 million heads, and the average price of commercial pigs was -17%/-6% YoY to 14.6/13.8 yuan/kg.
The original value of sows has declined rapidly, increasing efficiency and reducing costs have initially paid off, and there is room for improvement in financial strength. 1) Increase efficiency and reduce costs:
The company focuses on aquaculture production management to increase efficiency and reduce costs. PSY 23.5 heads at the end of '23, +0.5 head year over year.
The 4Q23 company's caliber cost was 15.8 yuan/kg, down 1.6 yuan/kg from 1Q23, and dropped to 15.3 yuan/kg in April '24 as the impact of the winter epidemic abated. 2) Productive biological assets: At the end of 23/1Q24, productive biological assets were 51/43 billion yuan. We determined that due to a decrease in the original value of breeding pigs and a decrease in the number of sows that can reproduce. At the end of '23, the cost for sows to be solidified was 2,700 yuan/head, down 2,100 yuan/head from 1Q23, and the original value of sows dropped sharply. 3) Financial situation: At the end of 23/1Q24, the balance ratio was 72%/74%, and the monetary capital was 108.5/10.94 billion yuan. Focus on the company's main business and the marginal contribution of rising pig prices to the company's leverage reduction.
Focus on the core business of feed and pig farming, the certainty of cost improvement is high, and focus on the trend of improving financial strength.
1) Cost improvement: As the original value of the company's sows decreases and production performance increases, the company's complete cost improvement is more certain. At the end of 4Q23, the company's conversion cost for sows decreased by 2,100 yuan/head compared to 1Q23. We estimate that the amortization cost of commercial pigs for sows was reduced by about 0.4 yuan/kg. 2) Financial aspects: The company's fixed growth continues to advance, and cash flow management is still being gradually optimized. The company's pig breeding costs are low. Coupled with the large-scale and high turnover of the feed business, 1Q24 operating cash flow maintained a net inflow. In addition, the company also continues to promote fixed capital raising plans, and is focusing on payables management, disposal of idle pig farms, improving efficiency and reducing costs at the headquarters, or further strengthening capital reserves.
Profit forecasting and valuation
We maintain our 2024/25 net profit forecast of $18/19 billion. The current stock price corresponds to 23/21 times P/E in 2024/25, maintaining an outperforming industry rating. Maintain the target price of 12.5 yuan, corresponding to 32/30 times P/E in 2024/25, corresponding to 40% upward space.
risks
Risk of market growth and cost control falling short of expectations; risk of financial security; risk of animal disease.