Key points of investment

The company's performance in 2023 is still recovering. 24Q1 revenue declined slightly, and profit increased. In 2023, the company achieved revenue of 13.318 billion yuan, -17.36% year over year; realized net profit to mother - 1,538 billion yuan, -2141% year on year. 23Q4 achieved revenue of 32.12 billion yuan, or -31.13% year on year; realized net profit to mother of 890 million yuan, -3512% year over year.

24Q1 achieved revenue of 2,523 billion yuan, a year-on-year decrease of 27.43%; realized net profit to mother of 30.35 million yuan, an increase of 43.24% over the previous year.

In 2023, the company's food sector achieved revenue of 2,223 billion yuan, a year-on-year increase of 34.60%; of these, the prepared food business achieved revenue of 1,984 billion yuan, an increase of 50.94% over the previous year; the pig slaughter and breeding business maintained steady growth as a strategic support for the food business. In 2023, the company slaughtered a total of 6.4354 million pigs, an increase of 9.19% over the previous year. The number of pigs released was 650,000, an increase of 29.6% over the previous year.

In terms of channels, the company is adhering to the strategy of focusing on the B-side and supplementing the C-side to achieve omni-channel coverage, continuing to push forward the network weaving plan and expanding the number of dealers. By the end of 2023, the company had developed more than 1,300 prepared food distributors, and the annual sales volume of the prepared food distribution market in Shandong increased 38% year-on-year. At the same time, the company continues to deepen the business of advantageous platforms such as JD and Douyin, optimizing operating models such as Tmall, Pinduoduo, and Video, and relying on leading platforms such as Meituan and Pinduoduo to further increase the scale of online product sales. Among them, the company's JD platform sales were about 93 million yuan, up 6.79% year on year; Douyin sales were about 20 million yuan, up 319.93% year on year; Pinduoduo sold about 16 million yuan, up 81.33% year on year.

Fluctuations in pig prices have had a certain impact on the company's gross margin. The 24Q1 gross margin all increased the company's gross margin by -1.58% in 2023, down 5.61 pcts year on year; the 24Q1 achieved gross margin of 6.12%, up 1.45 pct year on year; mainly because pig price fluctuations had a great impact on the company's gross margin.

In 2023, the company's net profit margin was -11.14%, down 11.76pct year on year; in 24Q1, the company's net profit margin was 1.18%, +0.12pct year on year.

Maintain the buy rating and slightly adjust the previous profit forecast

Considering that the company's traditional business sector was affected by the continuous decline in sales prices of hairy pigs and pork market prices, and the combined impact of the epidemic, the company's traditional business sector caused large losses in 2023; at the same time, the company's trade sector business continued to shrink according to the strategy and losses were large; at the same time, due to the impact of pig prices, the company's inventory and biological assets were depreciated, and the company will aim to reverse losses in 24, so we slightly lowered our previous profit forecast. We expect to achieve revenue of 144.74/161.02/18.159 billion in 24-26, with year-on-year increases of 8.67%, 11.25%, and 12.77% respectively; realized net profit to mother of 0.59, 2.33, and 366 million yuan, respectively, corresponding to PE 152/39/25 times.

Risk warning: the risk of pig price fluctuations, weak terminal demand, and channel expansion falling short of expectations.