The company's recent situation
Recently, we attended the Muyuan Shareholders' Meeting. The company exchanged views with shareholders on plans to increase efficiency and reduce costs, increase sales, and use of capital. We believe that the company uses technological innovation as the driving force for development, that growth is supported by production capacity, and that cash returns are expected to increase. We are optimistic about the company's long-term growth and valuation increase.
reviews
Focus on technological innovation, rapidly optimize production management, and promote cost leadership. On the one hand, Makihara is determined to work hard on technological innovation to create a foundation of management advantages. According to the company's announcement on April 27, the company's scientific and technological innovation focuses on pig house design, feed nutrition, epidemic prevention and control, intelligent equipment and environmental protection processes, etc., and continues to advance the potential target of 600 yuan/head cost. On the other hand, the company optimizes and complements swine disease prevention and control experience and promotes management upgrades. According to the company's announcement, as the company's swine disease prevention and control measures improved, the impact of swine disease subsided last winter, and the cost of feed ingredients declined, the company's full cost target plan is to reach 14/13 yuan/kg by the end of the year 24, with cost improvements of about 1 yuan/kg each due to reduced raw material costs and increased production efficiency. In summary, we judge that Muyuan's cost advantage position may remain stable.
Supported by a production capacity of 80 million heads/year, sales volume is expected to expand steadily. First, the company's pig breeding production capacity is sufficient. According to the company's May 23 announcement, the company's current pig breeding production capacity design scale is 80 million heads/year. Considering the flexibility of production processes such as column density, if production performance continues to improve, personnel capacity is strengthened, and pig house turnover increases, the company expects that the current production capacity may support 100 million heads/year. Second, there is room to improve the utilization rate of the company's pig production capacity. According to the Financial Association, there is still about 30% of Makihara's sow production capacity. Therefore, we believe that the company's 2024 listing target is 66-72 million heads, that long-term listing growth has a solid production capacity foundation, and that the listing volume is still flexible.
Capital expenditure may tend to converge, shareholder cash returns or strengthening, and I am optimistic that the company's valuation level will increase. According to the company's May 17 announcement, the company's current production capacity is sufficient, and the pace of capital expenditure may gradually be reduced in the future, mainly maintenance and modification; in comparison, the capital expenditure for 2020A and 2024E is 46.1 billion yuan and 10 billion yuan respectively, of which maintenance and modification accounts for about 3 billion yuan of 2024E capital expenditure, and the planned future capital expenditure is gradually controlled to a lower level. We believe that, on the one hand, the company currently has the leading cost advantage. We estimate that the company's current cost is about 200 yuan/head lower than the industry, which in turn is reflected in the company's stronger profitability and operating cash flow capacity. We believe that in the context of capital expenditure convergence, the company's free cash flow is expected to increase, which may in turn favor an increase in valuation. On the other hand, we believe that as the company's cash flow becomes steady, the dividend ratio is also expected to increase after the balance sheet is repaired, which is beneficial to the increase in shareholders' cash returns.
Profit forecasting and valuation
We maintain our 2024/25 net profit forecast of $142.6/16.96 billion. The current stock price corresponds to 19/16 times P/E in 2024/25, maintaining an outperforming industry rating. Maintain the target price of 56 yuan, corresponding to 21/18 times P/E in 2024/25, corresponding to 15% upward space.
risks
Pig prices and release volumes fell short of expectations; risk of the epidemic; raw material prices rose more than expected.