The company's recent situation

Recently, we invited the management of Wen's Co., Ltd. to conduct an offline non-transactional roadshow. The company exchanged views with the organization on issues such as business strategy, industry pattern, and cost reduction plans. We believe that the company achieved remarkable results in reducing costs and increasing efficiency in April, and that its financial strength remained stable. We judge or prioritize the increase in pig prices.

reviews

The company's production efficiency improved rapidly, compounded the decline in feed raw material costs in the industry, and the cost improvement was significant.

Overall, the company's comprehensive cost of pig breeding in April was reduced to 14.4/12.2 yuan/kg, -0.4/-0.4 yuan/kg month-on-month, and -2.4/-1.8 yuan/kg year-on-year; at the same time, out of 16 provincial regional pork pig breeding units, the comprehensive cost was already below 14 yuan/kg. Specifically: 1) On the pork side: The company's fine management drives production quality and efficiency, and drives rapid cost improvement. In April, the company's breeding and delivery rate was 84%, about +4/+2ppt; Wo Jun had 11.2 heads, +0.4 heads; PSY was about 23, about +1 head yoy/month over month/month; meat ratio was 2.63, -0.04 year over year. Looking ahead, if the price of feed ingredients is stable, we determine that as the company's production efficiency returns to non-plague levels, there is still room for further reduction in costs. 2) Broiler side: Costs have continued to decline, mainly because the company's production efficiency remains at a high level, which is compounded by the decline in raw material costs.

The company always adheres to the general tone of “strong foundation and steady development”, and its financial strength continues to be steady.

First, the company's overall financial situation is good. 1Q24 The company's balance ratio is 63.4%, which is lower than the industry average. Second, the company comprehensively considers cycle fluctuations, production and operation, and adjusts and optimizes capital planning.

According to the May 11 announcement, on the premise of ensuring the normal operation of the enterprise now and in the future, the company reduced part of its cash reserves and repaid and replaced part of the high-interest loans. In 1Q24/4, the company's capital expenditure plan was steady, setting a fixed asset investment plan of 20-30 billion yuan for 2024, which continued to recede from 3.7 billion yuan in 23. Third, we believe that livestock and poultry prices are expected to pick up this year, and that the company will focus on cost management and cost competitiveness, which will benefit the strengthening of financial strength.

With leading costs, steady growth, and sufficient capital, we are optimistic that the company's balance sheet will be further repaired in '24.

1) Industry level: With the recent rise in pig prices, we judge that the company has initially achieved profit. According to Yongyi Consulting, the pig price was 15.37 yuan/kg on May 15, which is already higher than the company's full cost. Furthermore, we judge that pig prices rose quarterly in 2Q24, and the company's profit flexibility is expected to be released quarterly. 2) Pig breeding: The company maintains a 24-year target of 30 to 33 million heads, corresponding to a 14%-26% increase. The company's pig production capacity is about 46 million heads. The current capacity utilization rate is 68%, which is supported by long-term high-quality growth. 3) Broiler breeding: The company plans to increase broiler sales by 5-10% to 12.4-1.30 billion in 24 years, which is expected to maintain its competitive advantage.

Profit forecasting and valuation

We maintain our 24/25 net profit forecast of $68/9.3 billion. The current stock price corresponds to 21/15 times P/E in 2024/25, maintaining an outperforming industry rating. Maintain the target price of 25 yuan, corresponding to 25/18 times P/E in 2024/25, corresponding to 18.8% upward space.

risks

The risk of animal diseases such as non-plague; the risk that the company will be listed below expectations; the risk of rising feed costs.