Incidents:
On April 28, 2024, Wen's Co., Ltd. released its 2023 annual report and 2024 quarterly report: the company's total revenue in 2023 was 89.921 billion yuan, up 7.4% year on year, net profit to mother was -6.39 billion yuan, performance loss; 2024Q1 total operating income was 21.848 billion yuan, up 9.38% year on year, net profit to mother was -1,236 billion yuan, loss of performance.
Investment highlights:
Revenue grew steadily, and poor pig and yellow chicken prices dragged down performance. In 2023, the company's total revenue was 89.921 billion yuan, up 7.4% year on year. Among them, sales of pork pigs and broilers accounted for 90.02% of total operating income. The main reason for the increase in the company's total revenue was the increase in sales revenue for pork pigs and broilers, while the main reason for the increase in pork and broiler revenue was the increase in sales volume.
Among them, sales of pork pigs (including hairy pigs and fresh products, hairy pigs account for more than 96%) were 26.2622 million heads, up 46.65% year on year, revenue was 46.265 billion yuan, up 12.67% year on year, the average sales price of hairy pigs was 1,481 yuan/kg, down 22.26% year on year. The decline in pork prices led to a decrease in pork revenue growth rate less than the sales volume growth rate; sales of 1,183 million broilers (containing hairy chicken, fresh products and cooked food, gross chicken accounting for more than 85%) increased 9.51% year on year, revenue of 34.695 billion yuan, up 2.21% year on year. The average sales price was 13.69 yuan/kg, down 11.51% year on year. Due to the drop in chicken prices, the growth rate of broiler revenue was less than the growth rate of sales volume. The company carried out impairment tests on expendable biological assets and productive biological assets in accordance with the relevant provisions and requirements of corporate accounting standards. The total amount was 161 million yuan, a decrease of 14.33% over the same period.
Farming indicators have been optimized, and production performance is improving. The company continues to strengthen basic production management, pig production performance continues to improve, and breeding costs continue to decrease. According to the investor relations activity records disclosed by the company (20240428), as of the end of March, the company was able to breed about 1.55 million sows, and the reserve sows were sufficient. The company's pig farming business PSY increased to about 23 in March; the production cost of pig seedlings was about 370 yuan/head; the market rate of pork pigs was 92%, and the comprehensive cost of pig breeding fell to about 7.6 yuan/kg in the first quarter. Among them, the comprehensive cost of pig breeding fell to about 7.4 yuan/kg in March, down about 0.4 yuan/kg from month to month. 2024Q1 Company's broiler production continues to maintain a high level of stability. The broiler breeding market rate remains at 94% to 95%; the meat ratio is about 2.83, and the complete cost of selling chicken in the first quarter fell to around 6.4 yuan/kg, of which it dropped to around 6.3 yuan/kg in March.
Profit forecast and investment ratings Recently, pig prices have been rising year-on-year. We expect the pig price center to continue to rise in the second half of this year, and the company's profitability is expected to increase. Therefore, we are adjusting the company's performance. We expect the company's revenue to 2024-2026 to be 1014/1189.8/1153.2 billion yuan, and net profit to the mother will be 67.77/152.12/8.492 billion yuan, corresponding to PE 19/8/15 times, respectively. The company's pigs and yellow chickens are large. In the future, as prices recover, we are optimistic about the company's performance improving and maintaining the “buy” rating.
Risks indicate the risk of fluctuations in the price of feed ingredients; the risk of epidemics and price fluctuations in pig farming; the risk that pig prices will rise less than expected; the risk of consumption recovery falling short of expectations; the risk of breeding diseases; the risk of company performance falling short of expectations, etc.