Losses were reduced year-on-year in 2024Q1, and the Dechang project began to be put into operation. In 2023, the company achieved operating income of 4,041 billion yuan, +1.83% year on year; net profit to mother - 645 million yuan, -508.18% year over year. Pig prices continued to fall in 2023, leading to losses. The company prepared 111 million yuan for impairment of various assets at the end of 2023. 2024Q1 revenue was 949 million yuan, up 6.16% year on year; net profit to mother - 138 million yuan, +32.85% year over year. Among them, the company's pig business achieved revenue of 3.463 billion yuan in 2023, an increase of 15.81% over the previous year. The company released 2.673,700 pigs in 2023, +74.74% year-on-year. According to the investor relations records, the company released 513,000 pigs in 2024Q1, of which the number of fat pigs released increased by 36.4% year on year; 2024Q1 breeding costs 13.82 yuan/kg, and some excellent breeding bases have already achieved profits. The company's 2024 farming costs are expected to continue to decline from the first quarter. The Dechang Superstar Integrated Pig Breeding Project is carrying out the introduction work according to the plan. It is expected to be completed by the end of May 2024 to support future growth.
Leading aquaculture in the southwest region cooperated with PIC to create an efficient population. In August 2023, the controlling shareholder of the company was changed to Superstar Group, and the actual controller of the company was changed to Mr. Tang Guangyue. At the same time, the company elected Mr. Duan Lifeng as the chairman of the company and appointed Mr. Tang Chunxiang as the company's general manager. They have all been deeply involved in the pig breeding industry for many years and have rich management experience. After the transfer was completed, the company made pig breeding its strategic focus, which is conducive to the company's medium- to long-term development. In terms of breeding, the company cooperated with PIC, a world-renowned pig breeding company, to optimize production capacity efficiency. Take Superstar Farming and Animal Husbandry Gao Guanchang as an example. During the 2 years that PIC served, production performance improved markedly, and various production indicators were much higher than the industry average. In addition, the company signed an agreement with Pipestone, a world-renowned pig farming service technology company, to introduce Pipestone's complete breeding concept and production technology system, and production performance, production efficiency and biosafety have all been greatly improved. Currently, the company mainly lays out pig breeding and breeding bases in the southwest, and supports the construction of fattening farms according to the specific conditions of the base. In the future, the company will continue to expand production capacity and achieve long-term goals through a combination of various methods such as leasing, acquisition, construction and renovation and expansion of pig farms.
Production capacity has expanded rapidly, and costs have maintained an advantage. (1) Production capacity is expanding rapidly, and there is still room for cost reduction. Since 2020, the company has entered a stage of rapid development, and the CAGR of sales volume from 2020 to 2023 is 104%. While the company is rapidly expanding in scale, the cost remains low. In 2023, the production cost of fat pigs was 14.68 yuan/kg, and it performed well in the industry. In 2024, the company will improve breeding efficiency through measures such as strengthening optimal selection and preparation, improving PSY; strengthening breeding process management to reduce disease mortality; increasing the proportion of ternary hybrid pigs and reducing the ratio of fattened pork to meat. It is expected that the company's farming costs will still have room to decline in 2024.
(2) The company raises capital to build production capacity to guarantee long-term growth goals. In December 2023, the company issued a fixed increase plan. The total capital raised will not exceed 1.2 billion yuan, mainly for pig breeding capacity construction projects, breeding technology research and development projects, etc. After the project is put into operation, it is expected that a total of 820,000 fat pigs will be released and 25,900 piglets will be released. The company has maintained rapid expansion under efficient and low-cost farming, and the farming business has strong ability to deliver.
The pig cycle is about to reverse, and farming profits will gradually recover. In terms of production capacity, breeding sows began to be eliminated in January 2023. As of March 2024, the production capacity for sows was 39.92 million heads, down about 9.07% from the end of 2022. Corresponding to the release of pigs after 10 months, it is transmitted to the current supply pressure decreasing season by season. At the same time, combined with the increase in pork consumption demand in the second half of the year, pig prices are expected to improve season by season. Pig prices in 2024 are likely to be better than in 2023, and a cycle reversal is imminent. With the gradual recovery of profits in the aquaculture industry, the company is expected to reap excessive profits with low costs and rapid expansion.
Profit forecast: With the commissioning of early projects and the delivery of new rental farms, we expect the company to release 400/700/10 million pigs in 2024-2026, respectively. The company is expected to achieve net profit of 557 million yuan, 1,738 million yuan, and 1,169 million yuan respectively in 2024-2026, +186.38%, +211.86%, and -32.78% year-on-year respectively. The corresponding EPS is 1.09 yuan, 3.41 yuan, and 2.29 yuan respectively. Corresponding to the current stock price 2024-2026 PE is 31, 10, and 15 times, respectively, covered for the first time, giving a “buy” rating.
Risk warning: the release of pigs falls short of expectations; risk of fluctuations in raw material prices; risk of epidemic diseases.