Promote scale expansion in multiple ways and maintain a “buy” rating
Superstar Farming and Animal Husbandry plans to jointly promote cooperation with the People's Government of Tianyang District, Baise City, Guangxi, to promote cooperation in the breeding concentration area project for 10,000 excellent breeding pigs in Tianyang District. The company is developing a new path of scale expansion based on leasing pig farms, fixed capital raising, and developing surrogate farmers, etc., which is expected to provide strong support for the goal of listing 700 to 800/10 million heads in 2025/26. At the same time, the company still has a comparative cost advantage, and subsequent costs are expected to continue to decline as the capacity utilization rate of the Dechang project increases and aquaculture management is further optimized. We expect the company's net profit to be 4.34/25.13/2,083 million yuan in 2024/25/26, and the BVPS will be 6.87/11.79/15.88 yuan, respectively.
Referring to the comparable company Wind in 2024, which is a consistent expectation of 3.46x PB, considering that the company uses an asset-light model to help scale expansion and cost reduction clearly, we maintain the company's 2024 7.19x PB, with a corresponding target price of 49.40 yuan, maintaining a “buy” rating.
Expansion of scale was promoted in various ways, supporting the rapid growth in production volume: On May 14, Superstar Farming and Animal Husbandry signed a strategic cooperation framework agreement with the Tianyang District People's Government in Baise City, Guangxi to jointly promote cooperation on the 10,000 excellent breeding pig breeding farm project in Tianyang District. After completion, the project is expected to contribute 300,000 piglets per year. At the same time, the partners will continue to promote subsequent on-site inspections and strive to launch an 80-1 million pig industry in the Tianyang District layout plan year. Comment: By the end of April, Superstar had a breeding pig production capacity of about 155,000 heads. By the end of 2024, the breeding capacity target was 240,000 to 280,000 heads, of which 90,000 additional leased production capacity had already been signed to be delivered, and the production capacity of nearly 1.2 million pigs released per year with fixed increases in funding continued to advance. On the basis of rapidly expanding production capacity through leasing pig farms, fixed capital increases, and continuous development of surrogate farmers, etc., the company has developed a new path of scale expansion and added pig production capacity through cooperation with local governments, which is expected to provide strong support for the company's goal of listing 700 to 800/10 million heads in 2025/26.
The idea of reducing costs and expanding potential is clear, and the asset-light model helps scale expansion
1) Cost reduction: Although the company's total cost of raising pigs has increased in the short term, it is still at a relatively leading level in the industry, and there is still plenty of room for future cost reduction. The company's full cost target for 2024 is about 14.7 to 14.8 yuan/kg, which is highly attainable. Mainly through the Dechang Project, the cost of pig breeding was reduced by reducing depreciation and amortization costs on a single head after the release of pigs, and continuing to reduce pig breeding costs by implementing preferential selection and optimal matching, optimizing genetic management, and improving the survival rate of pigs on the fattening side. 2) Additional listings: In 2024/25/26, the company's listing targets are 350~400/700~800/10 million heads, respectively.
Production capacity expansion mainly uses asset-light models such as leasing pig farms and “company+farmer”, with less financial pressure.
The pig cycle is about to reverse, and the company's low cost and high expansion advantages are obvious
Domestic breeding sows showed an accelerated trend of degeneration from 23H2 to 24Q1, which is expected to drive the pig cycle to reverse in 2024 and enter a relatively continuous profit period for the pig breeding industry. The company is a high-quality pig company with low cost and high expansion, and is expected to record excessive profits during the period when pig prices rise.
Risk warning: pig price rise/cost decline/release volume falls short of expectations, sudden large-scale outbreaks, etc.