Cost reduction accelerated in May, pig prices rose rapidly, and maintained a “buy” rating
Pig prices rose rapidly in May, and the company's cost reduction accelerated. The company's ability to breed sows continued to increase, and there was plenty of room for future cost reduction. We maintain our profit forecast. We expect the company's net profit to be 179/399/36.8 billion yuan in 2024/25/26, corresponding BVPS of 14.76/21.86/28.39 yuan. Referring to comparable company Wind's consistent expectations of 4.41x PB in 2024, considering the company's stable leading advantage, continued cost reduction and efficiency, and a steady increase in sow storage, we gave the company 4.54x PB for 24 years, with a target price of 67.01 yuan to maintain the “buy” rating.
Costs improved at an accelerated pace, and commercial fat pigs officially turned profitable
The price of fat pigs has risen. The company sold 5.86 million pigs in May, a year-on-month increase; achieved sales revenue of 10.5 billion yuan, +10% year-on-year and +14% month-on-month. Among them, there were 4.91 million heads of commercial pigs, the average sales price was 15.52 yuan/kg, and the average sales price was +9%, and the average sales price was +5% month-on-month. We estimate that commercial pigs weighed about 125 to 130 kg, a slight increase over the previous year and a slight decrease from month to month; in May, piglet prices remained high, piglet sales were still strong, with sales of 880,000 heads, +132% year over year. It is worth noting that since this year, the company's total cost of fattening has continued to improve. We estimate that the total cost of fattening fell by 0.5 yuan/kg in May from around 15.8 yuan/kg in February, showing an accelerated downward trend. It has dropped to the optimal cost level in 2023 (around July 2023). The cost improvement mainly comes from improvements in production performance (the impact of the pig epidemic at the end of 2023 has been basically digested), a decrease in the cost per unit period due to lower feed raw material prices and increased sales volume. Price increases combined with cost improvements. We estimate that the company's commercial pig farming has officially moved into the profit range since May.
Supported by medium term supply contraction, the rise in pig prices kicks off
As of June 5, the average price of pigs nationwide was about 18.4 yuan/kg, up nearly 4 yuan/kg from the end of April.
Although the recent rapid rise in pig prices is driven by certain emotional factors such as pressure and secondary education, the actual market entry ratio is not significant. It is more due to the accelerated loss of production capacity of 23H2 sows. Considering that from January 2023 to April 2024, the total number of breeding sows was 11.5%, and there is an accelerated trend of degeneration. At the same time, it is more rational to put down two breeding lists this year. We believe that this round of pig price increases and sustainability is more worth looking forward to.
The goal of reducing costs and expanding potential is firm, and the number of sows kept is increasing steadily
On the cost side, looking ahead, although direct losses such as death and amortization due to the pig epidemic at the end of 2023 have basically been digested, the company's production indicators such as PSY and survival rate have not been fully recovered, and there is plenty of room for continuous improvement in subsequent production performance. The compounded increase in sales scale is driven by lower unit costs and lower feed raw material prices. There is still enough room for the company's cost expansion, and the average cost target of 14 yuan/kg in 2024 is highly achievable. Meanwhile, the company's breeding sow inventory has continued to increase recently. By the end of April, the number of breeding sows had increased to about 3.2 million, and there was a further increase in May. Actively recommend Makiyuan Co., Ltd., a leading pig farming company that continues to expand costs, has a clear advantage in capital, and has a steady increase in sows.
Risk warning: the number of pigs released fell short of expectations, pig prices fell short of expectations, large-scale animal diseases broke out, etc.