In the context of stock competition in the feed industry, Haida Group relies on strong core competitiveness and has been able to reverse the market share. Over the past 3 years, its market share has increased from 5.8% to 7%. We believe that now that the feed sector is gradually entering the survival of the fittest stage, Haida Group's strong growth certainty has made its scarcity more prominent, and we are optimistic about its long-term growth. As the downstream farming boom gradually picks up and the overseas feed business enters a period of rapid growth, the company's performance is expected to grow rapidly, and key recommendations are recommended.
The feed industry has entered an era of stock competition. The current feed industry, Hengqiang, a strong player in Haida Group, has entered an era of stock competition. In 2023, when the downstream farming market is sluggish and the industry is under great pressure, Haida Group's total feed sales still achieved a 12% year-on-year increase, far exceeding the industry average. Against the backdrop of a 7% year-on-year decline in the total volume of the aquatic materials industry, the company's total fishery materials increased 2% year on year in 2023, and special water materials increased 13% year on year. From 2010 to 2023, the company's total feed market share increased from 1.5% to 7.0%, and the share of aquatic products increased from 7.1% to 22%. We believe that the main reason behind Haida Group's continuous increase in market share is that it has built a deep moat for itself through continuous R&D investment in the past: 1. Excellent and clear feed product capabilities, which enable customers to obtain higher benefits than similar farmers; 2. Continuous and professional technical research and development capabilities have realized the needs of the entire farming process from feed, seedlings, pharmaceuticals, vaccines, biological products, etc., to enhance customer stickiness; 3. A perfect farming technology service system creates value by providing customers with breeding solutions. Furthermore, a perfect talent training system and an effective incentive mechanism have also laid the foundation for the company's continuous and stable development.
The aquaculture boom has recovered, and overseas business has entered a period of rapid growth
Looking at the current point, with the gradual recovery of the downstream aquaculture boom and the rapid growth of overseas business, the company's performance growth is expected to accelerate. Specifically, as the aquaculture market continues to lose money since last year, the industry's pond storage volume has declined markedly. As supply-side contraction gradually reflects, aquatic product prices have begun to recover this year. Prices of tilapia and California perch have increased by 16% and 74% respectively since the beginning of the year. Prices of grass carp and raw fish have also gradually picked up recently. On the one hand, the rise in the fishery boom may cause the volume and price of the company's aquatic feed to rise sharply; on the other hand, the company's fish farming business is also expected to reduce losses; 2. As the company's competitiveness continues to be highlighted, overseas business has also entered a period of rapid development. In 2023, the company sold 1.17 million tons of feed overseas, up 24% year on year, far higher than 12% at home. The company's mature “feed+seedling+animal insurance” model formed a competitive advantage in the overseas industrial chain, and space for overseas growth gradually opened up. In addition, the company's light-capital-generating pig breeding business is expected to lock in profits through fine management and hedging through futures tools.
How do you view the current investment value of Haida Group?
We believe that in the context of the feed industry beginning to gradually enter survival of the fittest, Haida Group is more certain to achieve long-term growth through the deeper moat it has built, and its scarcity is now becoming more prominent. Moreover, the company's current market share of 7% still has a lot of room for improvement. In the long run, the company's feed sales are expected to reach 40 million tons, with a compound annual growth rate of about 15%. Looking at the historical review, the company's PE valuation center is around 32X, and in 2020 and 2022, which have had good performance in the past, the average valuation level will further improve, reaching about 42X-76X. Currently, the company's PE valuation for this year is only about 20X, which is at the bottom of the historical valuation level. Considering the certainty of the company's long-term growth and the performance elasticity brought about by the recovery in the downstream farming boom this year combined with high growth in the overseas feed business (the annual company's performance growth rate is expected to exceed 50%), the company has great upward flexibility and is highly recommended.
Risk warning
1. The impact of extreme weather factors;
2. The downstream aquaculture boom falls short of expectations;
3. Prices of raw materials have risen sharply;
4. The profit forecast assumption is unfounded or falls short of the expected risk.