The leading feed business is growing rapidly, and genetically-modified seeds are expected to drive upward performance, maintaining the “buy” rating of 2023 revenue/net profit of 333.90/ -2174 billion yuan, +3.07%/-4355.85%, of which 2023Q4 revenue/net profit to mother was 94.59-1.65 billion yuan, -8.19%/-429.36% year over year. The decline in performance is dragging down the pig breeding business and increasing asset impairment reserves of 1.34 billion yuan. 2024Q1 revenue/net profit attributable to mother was 6.707/-209 million yuan, -13.76%/+32.16% year-on-year, and profit-side losses narrowed. The company's feed business is steady, and genetically modified seeds are expected to drive rapid growth in the seed industry sector in the future. We maintain the 2024-2025 profit forecast and add the 2026 profit forecast. The company's net profit for 2024-2026 is 10.27/12.61 billion yuan and EPS is 0.25/0.31/0.41 yuan. The PE corresponding to the current stock price is 18.0/14.7/11.0 times, respectively, maintaining a “buy” rating.
Feed business: High growth in pig feed sales drove feed business growth. Net feed profit increased significantly year-on-year to 2023 feed revenue of 24.021 billion yuan, +7.76% year-on-year. As the company continues to strengthen the core advantages of pig feed in the field of front-end feed and high-end feed, the sales volume of pig/aquatic feed/ruminant feed in 2023 was 465.92/32.42/670,400 tons, +14.03%/-24.60%/+5.49% year-on-year. The steady increase in pig feed volume drove the gross margin of the company's feed business to increase 0.92 pct to 12.44% year on year, and net profit increased by more than 60% year on year.
Pig breeding business: The number of listings increased sharply year on year. After pig prices recover, it is expected to contribute a considerable profit of 5.702 billion yuan in pig revenue in 2023, +4.31% year over year, gross profit margin -7.91%, -27.90 pct year on year. The slump in the pig farming market caused pig companies to generally lose money. In 2023, the company released 6.0487 million pigs, +36.50% year-on-year.
At the end of 2023, 3,0594 million pigs were kept, of which 30.12/225.23/502,600 were basic sows and reserve sows/fattening pigs/piglets. The number of pigs released by the company is growing steadily, and the storage volume is relatively abundant. It is expected that 2024H2 will drive profit recovery in the pig breeding business after recovering.
Seed business: Seed sales and revenue growth are impressive. I am optimistic that the release of genetically-modified seeds will drive upward performance of the seed industry in 2023, +48.84% year over year, sales volume of 61.66 million kg, +47.39% year on year. Among them, corn and rice seed revenue was 9.25/ 400 million yuan, +63.82%/+12.95% year over year. The company has a forward-looking layout for genetically-modified seed research and development. By the end of 2024Q1, the company had 3 varieties of corn that had been tested, and the 64 corn varieties had a total of 37 varieties using the company's traits. The company had significant advantages in terms of traits. As the penetration rate of genetically modified seeds in China increases, genetically-modified seed sales and traits costs are expected to drive a high increase in the company's seed industry sector's performance.
Risk warning: The extent to which the price of feed raw materials has declined, the length of the loss cycle in the pig breeding industry, etc.