Key points of investment:
The pig breeding business is developing steadily (250/3.5 million heads are planned to be released in 2024/2025); excellent breeding performance (full cost of 14.5+ yuan/kg in 24Q1, leading cost in the industry); safe and steady capital (the company's monetary capital of 609 million yuan at the end of 24Q1, with a balance ratio of only 29.53%). Expand the whole industry chain (full supporting development of farming+feed+slaughter).
Low pig prices put pressure on the company's 2023 performance.
In 2023, the company achieved revenue of 3,891 billion yuan (+17.76% year over year). Affected by low pig prices, the company achieved net profit of 401 million yuan (-257.04% year over year). In 2023, the company's feed business revenue was 498 million yuan, pig revenue was 2,092 million yuan, and pork products and pig by-products revenue was 1,147 million yuan. In 2023, the company released 1,5204 thousand pigs, PSY averaged 27, and the overall survival rate was around 83%-85%. The company's average farming cost for the full year of 2023 was about 15 yuan/kg, and the full cost was about 16.2 yuan/kg (including year-end bonus). Compared with 2022, the full cost decreased by about 0.5 yuan/kg.
The supply of pigs has declined marginally, and pig prices are expected to gradually pick up.
At the end of March, there was a 3% year-on-year decline in the number of medium and large pigs stored in large-scale farms nationwide. The large and medium pig inventory corresponds to the number of pigs released within 2 months. This indicates that the number of pigs sold in the second quarter will decrease. Looking at the number of newborn piglets, the number of newborn piglets began to decline in October 2023, and stopped falling and rebounding in March 2024. During this period, the number of newborn piglets decreased by 4.9% compared to the same period last year. Combined with the 6-month fattening cycle and the seasonal increase in consumption, the loose supply situation in the pig market will be alleviated in the future, and pig prices are expected to gradually strengthen.
The production of pigs is growing at a high rate, and the cost advantage is remarkable.
In terms of pig breeding business ① Release volume: The company actually listed 1.52 million heads in 2023, and plans to release 250/3.5 million heads in 2024/2025 respectively; ② Cost: The company continues to improve the performance of breeding pigs to drive down piglet costs, reduce feed costs through centralized procurement, and improve the utilization rate of production capacity through scale effects, thereby reducing breeding costs. ③ Financial status: In 24Q1, the company's balance ratio was only 29.53%, which is a low level among breeding enterprises, with a monetary capital of 609 million yuan. A low balance ratio and sufficient cash support the rapid development of the company.
Profit Forecasts, Valuations, and Ratings
The company is expected to achieve revenue of 64.77/89.29/10.627 billion yuan (2024-2026 CAGR 28.09%) and net profit of 5.28/10.88/1,321 billion yuan (2024-2026 CAGR 58.15%, EPS 1.01/2.07/2.51 yuan/share, respectively. The company has strong future growth and stable finances. It was given 5xPb in 2024, with a “buy” rating for the first time. The target price was 42.5 yuan.
Risk warning: risk of epidemic disease, risk of long-term low pig prices, risk of large fluctuations in raw material prices.