Investment advice: Prepared dishes are growing rapidly, and the slaughter business is expected to improve. The prepared food industry is undergoing a period of rapid penetration with a “gain” rating. The industry is booming and flourishing. Currently, prepared dishes are mainly on the B-side, with strong customer stickiness and a first-mover advantage. We expect net profit from 2024-2026 to be 0.95, 2.12, and 330 million yuan. The current stock price corresponds to 77.1/34.5/22.1 times PE in 2024-2026. The breeding and slaughter business suppresses profits due to low pig prices, while the prepared food business is growing rapidly, and the slaughter business is expected to improve. The fundamentals have reached an inflection point, and for the first time coverage has given a “gain” rating.
The prepared food industry is booming and flourishing. It is currently in a period of rapid penetration, and there is a high degree of certainty compared to the increase in the penetration rate of China's prepared food industry overseas. The B-side catering chain, large-scale development, and demand for cost reduction and efficiency drive the rapid development of the upstream catering supply chain; the C-side is convenient and fast, and the short-term focus is on market cultivation. At this stage, the industry threshold is low, and there are many participants with various resource endowments, showing a competitive pattern full of flowers.
The new chairman took office to accelerate the development of prepared dishes. The prepared food business grew rapidly. The food sector achieved revenue of 2,223 billion yuan in 2023, and the share of main business increased to 16.69%. The company has a complete product system, production capacity layout and R&D capabilities, and gradually builds advantages in the entire industry chain in raw materials, product selection, R&D and markets. (1) Product: The company has cultivated large single products worth 5-6 billion yuan, including varieties with a large stock market that can be replaced, such as sausage, bacon, and crispy meat. Tens of millions of single products such as meatballs and sausages have the potential to sell on a scale of 100 million. (2) R&D: The company is close to front-end market needs and has set up R&D centers in Shandong, Shanghai and Sichuan to continuously improve industrialization and prefabricated production capacity. (3) Channel: The company actively develops products around big B needs to enhance stickiness; improve small and medium-sized B-side dealer channels to create a model market. The new chairman will increase the number of prepared dishes after taking office, and the share of ready-made food revenue is expected to continue to increase.
Farming and slaughter have been refined in the short term to consolidate the foundation. It is expected that the two major businesses will be improved in the future to consolidate the foundation. The company has the advantage of innovating products and processes from the raw materials side, empowering the research and development of prepared dishes. Pig prices are low at this stage, and the company's short-term operations are bottoming out. If pig prices rebound in the future, the breeding and slaughter business is expected to continue to improve.
Risk warning: fluctuating raw material prices, weak demand for catering, fierce market competition, food safety risks