Incident: On April 29, the company released its annual report for '23 and its quarterly report for '24. For the full year of '23, the company achieved revenue/net profit of 26.949/ -1,526 billion yuan, +1.55%/-1228.76% year-on-year, respectively. The basic EPS was -1.09 yuan. In 23Q4/24Q1, revenue of 60.79 billion yuan was achieved, -22.47%/-25.19% YoY; net profit to mother was -6.15/-198 million yuan, -709.26%/+41.94% YoY.
The low pig price in '23 dragged down performance, and the number of pigs released maintained a high growth rate. Affected by the slump in pig prices, the average price of pigs sold by the company in '23 was 1,588 yuan/head, -19.55% year-on-year. The decline in average listing prices directly led to losses in the company's pig business. In terms of pig business, the company released 3.712,600 pigs in '23, +72.05; of these, commercial pigs sold 3.3866 million heads, +79.16% year over year, and piglets sold 326 million heads, +21.82% year on year. Commercial pig sales accounted for 91.22%, +3.62 pct year on year. Overall, the number of pigs released by the company continued to grow at a high rate in '23, indicating that the main business is growing well. The share of commercial pigs in sales has increased, and fattening production capacity has been better released. In terms of feed business, 7.0831 million tons of feed were exported in '23, +14.87% year-on-year, with an average sales price of 2,832 yuan/ton, or -14.22% year-on-year. The company increased the share of high-end feed products, so that the gross margin of the feed business reached 6.52%, +0.5pct compared to the previous year. The gross margin of the feed business is expected to increase further in 24 years.
The gross margin declined significantly, and the expense ratio increased slightly during the period. In '23Q4/24Q1, the company's gross margin was 2.74%/2.58%/4.16%, -5.03pct/-4.38pct/+2.03pct year-on-year, due to losses in the pig business, which dragged down the overall gross profit margin. The cost rate was +0.30pct/+2.74pct/+0.97pct year-on-year for the 23/23Q4/24Q1 period. Among them, the management expense ratio was 3.25%/3.09%/4.24%, +0.35pct/+0.94pct/+0.64pct year-on-year. The reason is the increase in expenses such as employee remuneration, depreciation, and insurance premiums. The financial expense ratio was 1.18%/1.30%/1.48%, +0.08pct/-0.03pct/+0.34pct year-on-year. The reason is the year-on-year increase in interest charges, exchange losses, etc.
Investment advice: Based on the operating conditions in '23 and 24Q1, we lowered our profit forecast. The estimated net profit for 24-26 will be 3.93/10.44/791 million yuan, +125.8%/+165.5%/-24.2% year-on-year, corresponding PE 21.1/8.0/10.5 times. There is still room for growth in the company's pig production in the future. The feed business is expected to maintain a high-end strategy. The company's main business is growing well, the synergy between various sectors is strong, and the “buy” rating is maintained.
Risk warning: the release of pigs falls short of expectations; pressure on raw material costs; poor demand for pork; risk of epidemic diseases, etc.