Incidents:
The company released its 2023 annual report and 2024 quarterly report, which 1) achieved operating income of 141.703 billion yuan in 2023, an increase of 0.14%; net profit to mother of 249 million yuan, turning a year-on-year loss into profit; 2) in the first quarter of 2024, operating income of 23.908 billion yuan, a year-on-year decrease of 29.49%; and net profit to mother of a loss of 1.934 billion yuan. The company sold shares in the white feather meat, poultry and food business, and obtained an investment income of 5.37 billion yuan, which was the key to reversing losses in 23. Feed was steady in the two major businesses, and the drag on the pig industry in the first quarter of '24 has abated.
Comment: Pigs are under pressure, feed is stable
Pigs: Active adjustments, improvements have been made in Q1 '24. The number of companies listed in Q1 in '23 and '24 was 1768/4.56 million, +21.0% and -3.3% year-on-year. The company's effects of eliminating inefficient market lines and improving production capacity utilization have already been reflected. At the end of 2023, the total cost of fat pigs released by the company in operation reached 15.8 yuan/kg, down 0.9 yuan/kg from the fourth quarter of '22, and is expected to drop below 15 yuan/kg by the end of '24. We expect the pig farming business to lose approximately $5.3 billion and $1.7 billion for the full year of '23 and Q1 '24, respectively.
Feed: Sales volume is stable, net profit per ton has increased. The company's total domestic and foreign feed sales in 2023 reached 28.76 million tons, an increase of 1% over the previous year. Among them, sales of pig feed, poultry and aquatic food were 1114/1522/1.71 million tons, respectively, 4%, 0% and -4% year-on-year respectively. At the same time, the company improved its operating capacity. The annual manufacturing cost decreased by 4 yuan/ton year on year, and the average net profit per ton increased 7% year on year. In '23, the company's feed sector contributed about $14-15 billion in net profit.
The industry is in the downward phase of the pig cycle. Actions such as selling and divesting non-main business assets, raising capital increases, and disposing of idle pig farms continue to reduce the pressure on the company's operations. By the end of the first quarter of '24, the company's monetary capital holdings were around 10.9 billion. Overall, the company's cash flow situation met the needs of production and operation, and the credit granting situation was generally stable.
Recovering from a difficult situation and maintaining an “gain” rating
The company's size strategy has shrunk, but increased efficiency will drive increased profitability. We expect the company's net profit to be 12/39/3.8 billion yuan in 2024-2026, and the corresponding EPS is 0.26/0.86/0.84 yuan. The company is recovering from a difficult situation and maintaining an “gain” rating.
Risk warning: Risk of animal outbreaks, demand falling short of expectations