Company profile
The leading livestock and poultry farming leader under the “company+farmer” model is growing steadily with two-wheel drive. With Qi Chuang sharing as its core culture, the company has been deeply involved in the farming industry for more than 40 years. It has now developed into a cross-regional modern agricultural and animal husbandry enterprise group with livestock and poultry farming as its main business and supporting related businesses. The company's pig and broiler breeding business accounted for more than 90% of total revenue. 2024Q1 achieved revenue of 21,842 billion yuan, an increase of 9.37% over the previous year; realized net profit to mother of 1,236 billion yuan, a year-on-year reduction in losses.
Investment logic
Pig breeding: Production efficiency is first-class in the industry, and long-term growth can be expected. As of April 2024, the number of breeding sows in the country was 39.86 million. The reduction in production capacity in the industry has exceeded April 2022. The average monthly price of 2022H2 pigs exceeds 27 yuan/kg, and the industry's average profit from pig prices is 1,228 yuan/head. This year, in the context of declining industry costs, pig prices may not be as high as 2022, but pig prices are likely to exceed 20 yuan/kg, and the average profit is expected to exceed 700 yuan/head in stages; in the context of the industry's high debt, the pace of supplementing production capacity is slow, and the cyclical boom and profit level are expected to exceed expectations.
As a leading pig breeding enterprise, the company has the following advantages: 1. Excellent breeding performance: As of 24M4, the comprehensive cost of breeding has dropped to 14.4 yuan/kg, returning to the first tier of the industry, and breeding costs are expected to lead the industry for a long time. 2. Excellent breeding layout: The company's total revenue in the high price zones of East China and South China exceeds 65%, and the company's average pig sales price industry is leading. 3. Steady asset-light expansion: As of 24M4, the company can keep 1.57 million sows, and plans to release 3,000-33 million pigs in 2024, with a year-on-year increase of 14%-26%; the company has built breeding farms with production capacity to support 46 million piglets, and the effective breeding capacity during the fattening phase is about 35 million heads, and is expected to grow steadily in the medium to long term.
Meat and poultry farming: Stable leading position, deeply involved in the entire industry chain. In 2023, 1,183 million broilers were released, an increase of 9.4% over the previous year. The number of broilers is far ahead in the industry, and has been growing steadily throughout the year. Broiler breeding costs are in the leading position all year round. As of 24M4, the total breeding cost for hairy chickens is 12.2 yuan/kg. The production capacity of yellow feather chicken parents has been at a low level since 2018. As the pig cycle boom picks up in the second half of the year, the company is expected to resonate with pigs and chickens.
Profit forecasts, valuations, and ratings
It is expected that pig and chicken prices will rise in the second half of the year, the company's breeding volume will grow steadily, the cost of superimposed feed is low, and performance flexibility can be expected. We expect that in 2024-2026, the company will achieve operating income of 1091/1266/136.7 billion yuan, +21.33%/16.1%/8.0% year-on-year; net profit to mother of 67/134/121 billion yuan, respectively, turning a year-on-year loss into profit/ +100%/-10%; and corresponding EPS of 1.01/2.02/1.83 yuan. Referring to the valuation table of comparable companies, the company was given a 2024 valuation corresponding to 28XPE, with a target price of 28.28 yuan/share, covering the first time to give a “buy” rating.
Risk warning
Pig prices fall short of expectations; fluctuating raw material prices; risk of animal diseases; risk of convertible bonds.