Key points of investment

The company released the May pig sales monthly report:

In May 2024, the company sold 5.86 million pigs (including 4.912 million commercial pigs, 881,000 piglets, and 66,000 breeding pigs), up 1.7% year-on-year, with sales revenue of 10.450 billion yuan; in May, the average sales price of the company's commercial pigs was 15.52 yuan/kg, up 4.86% from April. From January to May 2024, the company sold a total of 27.321 million pigs, an increase of 9.5% over the previous year; in January-May, the company achieved cumulative sales revenue of 45.313 billion yuan, an increase of 7.9% over the previous year.

The software and hardware are complete, and the release volume is expected to break the 70 million head mark. (1) Hardware: The pig house has abundant production capacity design. The company's current pig breeding capacity design scale is 80 million heads/year. In the future, with the continuous improvement of the company's production performance, the strengthening of personnel capacity, and the increase in the turnover rate of the pig house, the pig farm that the company has already built will be enough to support 100 million heads/year.

(2) Software aspect: The number of sows that can breed continues to increase. By the end of April 2024, the company was able to breed about 3.2 million sows, an increase of 71,000 from the end of 23, an increase of 168,000 from the end of June 23, and an increase of 354,000 from the end of March 23. In May 2024, the company's overall survival rate reached around 82.6%, and PSY levels reached 26-27. Increased sow reserves and improved production indicators are expected to support the continued growth of pig production. According to the announcement, the company initially plans to release 6600-72 million pigs in 24 years, an increase of 3.42%-12.82% over the previous year.

Epidemic disturbances have abated, and costs have entered a downward channel

In recent years, after rapid expansion, the company has switched to high-quality development. Through continuous innovation and implementation of technologies such as the application of intelligent equipment, pig house upgrading, epidemic prevention and control, and disease purification, the company continues to improve production indicators. Since the winter of 2023, due to disruptions caused by the pig epidemic, the company's production performance has been damaged. Since March, as the impact of the epidemic on the pig herd gradually decreased, the company's production performance has recovered. Combined with falling feed prices and increased listing, the company's breeding costs have improved significantly, falling to 14.3 yuan/kg in May 2024. In the future, with the further recovery and improvement of the company's production performance and the decline in feed costs, there is still room for reduction in the company's breeding costs, and it is expected to achieve the cost target of 13 yuan/kg by the end of 24.

Slaughter capacity utilization is expected to continue to increase

In 2023, the company slaughtered a total of 13.26 million pigs, an increase of 80% over the previous year, and the average loss dropped to about 70 yuan. Slaughter losses were mainly due to insufficient expansion of the Northeast regional market, and the capacity utilization rate of some slaughterhouses was low.

In 2024, the company's meat slaughter sector will continue to explore markets and channels, strengthen sales staff training and team building, and capacity utilization is expected to increase further.

Investment advice:

Since the beginning of 2023, sow production capacity has continued to clear up, laying the foundation for the rise in pig prices from 2024 to 2025. With its large release scale and industry-leading cost advantages, the company is expected to fully unleash performance flexibility in the upward cycle. Based on pig price trends, company listing plans and breeding costs, we expect the company to achieve net profit of 168.32/287.36/23.694 billion yuan in 2024/25/26, respectively. The corresponding EPS is 3.08/5.26/4.34 yuan respectively, and the current stock price of the corresponding PE is 14.62/8.56/10.39 times, respectively, maintaining the “buy” rating.

Risk warning:

The number of pigs released fell short of expectations, and pig prices fell short of expectations.