Core views:
Committed to integrated management of the industrial chain, the business layout is becoming more and more perfect. The company started with the feed business and is committed to integrated management of the pig industry chain around the three major industries of “healthy breeding, biological feed, and branded meat”, and has more than 160 branches/subsidiaries across the country. In '23, the company achieved revenue of 26.949 billion yuan, an increase of 1.55% over the previous year; due to factors such as low pig prices throughout '23, net profit to mother was a loss of 1,526 billion yuan. In addition, the company creates a business partner mechanism according to different levels and types of personnel structures, and implements equity incentives and dynamic assessments to effectively stimulate employees' creativity.
Pigs: The breeding business continues to increase, and costs are expected to gradually improve. The company uses Guangdong and Hunan as key development regions, and is expected to benefit from high pig prices in South China. In terms of breeding models, building farming is actively promoted. They are more proficient in building breeding techniques, and adopt the “1 zone 2. 3 section” breeding model to improve the efficiency of breeding management. At the same time, the company attaches importance to breeding pigs. The pig breeding system is gradually transitioning from “New American” to “New Dan”. Production indicators such as PSY and survival rate have all improved markedly, and costs have gradually declined. At the end of the cycle, the company continued to increase the pig project through fixed increases. The scale of future sales is flexible. It is estimated that the number of pigs released in 24 years will be about 4.5 million heads.
Feed: Steady operation and expansion of the downstream consumer terminal sector. The feed business is the company's traditional main business. It continues to operate steadily and ranks in the top ten industries in the country. In 2023, the company's total feed sales volume was 7.0831 million tons, up 14.87% year on year. The feed business can provide relatively stable cash flow and profits, ensure the safety of domestic materials, and effectively support the expansion of the pig business. The company gradually expanded from a regional brand to a national brand by laying out the downstream food consumption sector, increasing the added value of the pig industry chain, building the “Tang Renshen” meat brand.
Profit forecasting and investment advice. We expect the company's net profit to be 5.09, 8.09, and 1,277 billion yuan respectively in 2024-26, corresponding EPS of 0.36, 0.56, and 0.89 yuan/share, respectively, giving the company 24 times PE in 2024, corresponding to a reasonable value of about 8.53 yuan/share, maintaining a “buy” rating.
Risk warning. Risk of fluctuation in pig prices, risk of fluctuation in raw material prices, risk of epidemic, food safety, etc.