In 24Q1, the full cost of the company's commercial pigs gradually increased, but it is still at the leading level in the industry. Supported by the low cost advantage, the company's launch is expected to maintain high growth, fully unleashing profit flexibility during the period when pig prices rise. Maintain a “Highly Recommended” investment rating.
Costs are rising in stages, and 24Q1 results are in line with expectations. The company disclosed its 2024 quarterly report. During the reporting period, the company achieved revenue of 949 million yuan (yoy +6.2%) and net profit to mother of 138 million yuan (year-on-year loss reduction).
The company's results for the first quarter of '24 were in line with expectations. Specifically: 1) In terms of pig farming, 2024Q1, the company listed 513,000 pigs, of which the number of fat pigs released was +36%. Affected by the reduction in production volume and the commissioning of the Dechang project, the total cost of commercial pigs is estimated to be 16.0-16.5 yuan/kg; 2) In other business aspects, the leather business is expected to lose a small amount; 3) In addition, the company's asset disposal income and the impairment of expendable biological assets totaled around 30 million.
The cost advantage is stable, and production capacity may be maintained at a high rate. In terms of cost, we estimate that the total cost of the 24Q1 company's commercial pigs will gradually rise to 16.0-16.5 yuan/kg. The main or effect of factors such as an increase in cost amortization due to a decrease in production volume and the commissioning of the Dechang project. Driven by factors such as declining feed costs, increased capacity utilization, and improved production indicators, the full cost may have maintained a downward trend for 24 years. In terms of production capacity, by the end of 2024Q1, the company's productive biological assets were 377 million yuan. With the support of optimized production efficiency and outsourced piglets, the company's sales volume is expected to reach 3.5 to 4 million heads in 24, and will continue to grow at a high rate.
Production capacity continues to decline, and pig prices are poised to reverse. We believe that since January '23, production capacity for breeding sows has continued to decline, and there is a clear trend corresponding to the 24H2 pig price increase. The main logic is: 1) 24H1 pig prices may still be under pressure. From the supply side, the overall production capacity of 23H1 sows continues to decline, but the magnitude is slow, corresponding to the 24H1 supply contraction or overall decline; from the demand side, pork consumption has obvious seasonal characteristics, and the first half of the year is the traditional low season for pork consumption. 2) 24H2 pig prices may rise steadily. The number of newborn piglets in the country has declined markedly since October 2023, corresponding to a gradual contraction in the supply of 24H2 pigs, while pork consumption or seasonal recovery, the price of 24H2 pigs is expected to rise steadily.
Maintain a “Highly Recommended” investment rating. Sow production capacity continues to decline, supporting a trend rebound in pig prices. Supported by low costs, the company's production capacity expanded rapidly or supported rapid growth in sales volume over 24-25 years, fully unleashing profit flexibility during the period of rising pig prices. We estimate that in 2024-26, the company's net profit to mother will be 503 million yuan, 986 million yuan, and 767 million yuan respectively. Maintain a “Highly Recommended” investment rating.
Risk warning: Pig price performance/company size expansion fell short of expectations, sudden large-scale uncontrollable outbreaks, and major food safety incidents.