Core views:
The market share of yellow feather chicken has been increasing steadily, and the cost advantage has been leading for a long time. The company is a leading domestic yellow chicken breeding enterprise. According to annual reports, the number of yellow chickens released in '23 was about 460 million, an increase of 12% over the previous year, with a market share of about 13%, ranking first in East China and second in the country. The scale of yellow chicken farming has been growing steadily. The CAGR produced in 18-23 is about 11%, and the estimated number of piglets released in 24 is about 510 million, an increase of 12% over the previous year.
With the integrated scale advantage of the industrial chain, breeding advantages and feed formulation technology, the company's yellow chicken breeding costs have been in the leading position in the industry for a long time. As the cost of feed ingredients falls high, breeding costs are expected to maintain a downward trend. The company actively expands the slaughter and processing business and opens up new profit growth points.
The scale of pig farming continues to grow, and breeding costs have improved significantly. The company continues to promote the expansion of pig production capacity, and production capacity is located in many parts of Anhui, Shandong, and northern Jiangsu. According to the '23 annual report, the company released about 860,000 pigs in '23, an increase of 52% over the previous year. The company has built a fattening pig farm with a production capacity of about 1.6 million heads, and the scale of pig production will continue to grow. It plans to complete the target of 2 million heads of production capacity by '25. As production performance and capacity utilization increase, farming costs are expected to drop further.
Low production capacity and improved supply-demand relationships are driving the industry's sentiment to continue to rise. Currently, the industry's production capacity is at a historically low level. According to the Yellow Feather Chicken Association database, as of the 16th week of '24, there were 12.99 million sets of chickens raised by birth parents, and sales volume of chicks for parents was about 970,000 sets, and production capacity has been at a low level since 18 years. Supply-side pressure continues to be released due to falling production capacity in the second half of the year. The demand side is expected to benefit from marginal demand improvements brought about by the substitution effect of continuing to rise in pig prices, and the industry sentiment is expected to continue to rise.
Profit forecast and investment advice: The net profit for 24-26 is estimated to be 1.26 billion yuan, 17.1, and 2.30 billion yuan, respectively, and EPS is 1.52, 2.07, and 2.78 yuan/share, respectively. Considering the steady expansion of the company's yellow chicken, the breeding cost advantage is remarkable, and the scale of pig farming is rapidly increasing. Benefiting from rising livestock and poultry prices, the company's performance growth is highly elastic. Referring to comparable companies, the company was given a 24-year PE of 20X, corresponding to a reasonable value of 30.32 yuan/share, maintaining a “buy” rating.
Risk warning: risk of fluctuations in livestock and poultry prices, risk of fluctuations in raw material prices, risk of epidemic diseases.