Incidents:
The company disclosed the 2023 annual report and achieved revenue of 4,041 billion yuan, an increase of 1.83% year on year; net profit to mother - 645 million yuan, a year-on-year decrease of 508.18%.
The company disclosed its 2024 quarterly report and achieved revenue of 949 million yuan, up 6.16% year on year, down 8.33% month on month; net profit to mother - 138 million yuan, up 32.85% year on year, up 54.37% month on month.
Sluggish pig prices have dragged down the company's 23-year performance.
In 2023, the company's gross sales margin was -0.37% (-14.97pcts year-on-year), and the net sales margin was -15.98% (-20.05pcts year-on-year). The decline in profits is mainly due to a sharp drop in pig prices and the company's inventory price reduction preparations and asset impairment losses for expendable biological assets, fixed assets, etc. In terms of expenses, the company's sales/management/R&D/finance expenses in 2023 were 0.39/2.17/0.25/107 million yuan, respectively, 11.52%/-5.02%/+65.60%/+30.48% year-on-year. Among them, the increase in R&D expenses was mainly due to an increase in consulting fees, and the increase in financial expenses was mainly due to an increase in interest expenses on bank loans.
Pig production performance continues to be optimized, and cash flow is abundant.
The company's pig breeding sector achieved revenue of 3.463 billion yuan (+15.81% YoY), sales volume of 2.6737 million heads (YoY +74.74%), and the gross margin of the sector was -1.06% (YoY -19.14pcts). The pig breeding sector was affected by low pig prices and showed a loss situation. The number of pigs released by the company in Q1 in 2024 was 513,000, of which the number of fat pigs released increased by 36.4% year-on-year. The company's breeding cost was 6.91 yuan/kg, and production performance continued to be optimized. As of Q1 2024, the company's balance ratio was 62.19%, the monetary capital was 390 million yuan, and the cash flow was abundant.
The poultry business was shut down, and the leather business developed under pressure.
The company's leather products segment achieved revenue of 86 million yuan in 2023 (-71.70% year over year), and the gross margin of the sector was -1.48% (-0.33pcts year over year). The company's poultry business in 2023 achieved revenue of 0.26 million yuan (-77.41% YoY), sales volume of commercial chicken was 788 million (-73.89% YoY), and gross margin of the sector was -53.26% (YoY - 48.71 pcts). Due to the shutdown of the current commercial chicken business, the company cleared the remaining stocks ahead of schedule, causing the sector's performance to decline significantly.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 68.95/104.97/13.839 billion yuan, respectively, with year-on-year growth rates of 70.65%/52.23%/31.83%, and net profit to mother of 4.25/11.98/1,439 billion yuan respectively, with year-on-year growth rates of 165.91%/181.55%/20.20%, and EPS of 0.83/2.35/2.82 yuan/share respectively. In view of the company's significant growth in pig production, good cost control capabilities, and a clear asset-light expansion path, we gave the company 6.5 times PB in 2024 and a target price of 40.95 yuan, giving it a “buy” rating.
Risk warning: pig price fluctuation risk; risk of epidemic; risk of raw material price fluctuation