Report summary
Cycles affect performance, 24Q1 deducts unrealized profits
In '23, the company achieved operating income of 3,891 billion yuan, up 17.76% year on year; realized net profit to mother - 401 million yuan, turning loss year on year. The company's performance in '23 was mainly affected by the company's breeding expansion and pig cycle. In '23, the company achieved sales of 1,5204 million heads, an increase of 63.7% over the previous year; the revenue from the breeding business rose to 2.09 billion yuan, an increase of 19.42% over the previous year; and affected by the cycle of pigs, the gross profit margin of the breeding business in '23 was 2.46%, down 19.54 pcts year on year. The 24-year Q1 pig cycle picked up year-on-year, and the company's breeding business recovered significantly. Combined with the year-end plan, the price reduction of pigs to prepare for resale and return. The company achieved net profit to the mother of 3.566 million yuan in 24Q1, deducted non-net profit of 5.726 million yuan, and achieved profit after deducting non-profit losses.
Scale expansion, excellent aquaculture, and promote high-quality growth
The company's farming business is being promoted with high quality, expanded reasonably in scale, and continuously improved in terms of cost. Quantitatively, the company's scale expansion takes into account both steady and enterprising. Relatively rapid growth was achieved throughout '23, and 496,900 pigs were released in 24Q1, an increase of 41% over the previous year, continuing the good trend. In the future, the company will continue to promote healthy growth in scale. By the end of the first quarter, it will be able to breed about 90,000 sows. It is estimated that the number of sows kept will reach 130,000 by the end of 2024. The company's target for listing is 2.5 million heads in 2024 and 3.5 million in 2025. In terms of cost, the company has outstanding internal and external advantages, excellent farming, and costs continue to decline. The company is located in the southwest region, and the natural conditions for preventing plague are outstanding in mountainous areas of Yunnan. In addition, the company introduced PIC pig breeding, established high-quality breeding stocks, in-depth breeding management, and excellent breeding results. The average PSY in 24Q1 was 27.2 heads, with an average ratio of 2.57 to meat. The average complete cost of 24Q1 is about 14.5 yuan/kg, and the cost of weaning a piglet is about 330 yuan/head.
The pig cycle trend is improving, and advantageous growth companies are fully benefiting
The pressure level of the pig market may be in the past, and the cycle trend is improving. On the supply side, considering the transfer of early production capacity, it is expected that the peak of pig supply will pass, and industry supply may gradually shrink in the second quarter; on the demand side, considering recent CPI data, domestic consumption recovery is strong and resilient. In the future, as pig consumption seasonally warms up, it is expected to drive the pig market. In terms of production capacity, as of March '24, the number of sows that can be raised officially in the country was 39.92 million, which is 102.4% of normal holdings, which is still high. Major pig companies have accumulated financial pressure for a long period of time, and the reduction in overall industry production capacity is expected to further boost the long-term expectations of the pig market and drive the trend of the pig sector. Shennong Group is a high-quality growth target for the pig sector with potential for expansion and cost advantages, and is expected to fully benefit from the recovery of the pig cycle.
Investment advice
Shennong Group is a leading national agricultural industrialization enterprise integrating feed production, pig breeding, slaughter and processing, and deep food processing. The company's core pig business is enterprising and steady, with outstanding breeding technology, management and environmental advantages. It is expected to fully benefit from the pig cycle. We expect the company's net profit to be 298 million yuan, 1.07 billion yuan, and 1,213 billion yuan respectively in 2024-2026, and 0.57 yuan, 1.92 yuan, and 2.31 yuan, respectively. Corresponding PE for 23, 24, and 25 years is 65.31, 19.32, and 16.05 times, respectively. The first rating was given a “buy” rating.
Risk warning
The extent to which production capacity in the pig industry has been reduced, pork consumption falls short of expectations, etc.