The company's recent situation
Shengnong Development recently attended the CICC 2024 Mid-Term Strategy Meeting. The company exchanged views with participating investors on cost reduction and efficiency, sales growth, and breeding research and development. We believe that chicken prices in the 2H24 industry are expected to be boosted by the reversal of pig prices, the company's breeding capacity will be released, the food business will develop steadily, and profit flexibility will be released.
reviews
Farming continues to be released and costs have dropped significantly, and the quantitative benefits of the aquaculture sector can be expected to increase at the same time. On the one hand, benefiting from 23 years of mergers and acquisitions, the company achieved production capacity expansion. According to the company's announcement, slaughter volume in January-May increased by more than 20% year on year, and chicken sales/revenue in January-May was +17%/+1% year over year to 530,000 tons/5.4 billion yuan. Revenue growth was less than the sales volume mainly due to the year-on-year decline in chicken prices in the industry. On the other hand, with the steady decline in the price of feed ingredients since the beginning of the year and the iterative improvement of the company's internal breeding management level, the company's single-ton meat production cost dropped significantly year-on-year in May. Looking ahead, we believe that as the company continues to release more than 700 million chicken breeding capacity, chicken sales are expected to maintain rapid growth throughout the year, and there is still room for decline in breeding costs due to the combined effects of reduced raw materials and management efficiency. Furthermore, we believe that rising pig prices are also expected to give a certain boost to chicken prices. Overall, we expect the company's breeding sector to increase both in volume and profit throughout the year.
618 performed well during the good start phase, and the food business is expected to develop steadily. The company's sales volume/revenue for meat products in January-May was +11%/-3% year over year to 140,000 tons/3.2 billion yuan, of which export revenue increased by more than 30% year on year. We believe that sales volume mainly benefited from last year's expansion of production capacity, and the decline in revenue may be dragged down by the decline in chicken and beef prices. At the same time, the company's 618 Kickoff performed well. According to World Online Merchants, Shengnong's flagship store ranked first in Tmall's mid-year fresh food store sales list (May 20 to May 28). Looking ahead, we believe that on the one hand, production capacity in the food business continues to expand. Food Factory 10 is expected to start production and add 60,000 tons of high-price beef and lamb production capacity this year; on the other hand, major 2B customers such as Yum and McDonald's are steadily expanding their stores, and sales of large 2C products such as crispy fried chicken and tuk-tuk wings are all expected to help the food business grow steadily.
Chicken breeding continues to be iterated, and endogenous and epitaxial are expected to contribute marginally to the increase in performance. 1) The company successfully iterated a new breed of “Shengze 901 Plus” white feather broiler in 23. According to the company's announcement on April 9, the meat ratio under breeding conditions reached 1.42, an improvement of 0.05 compared to the “Shengze 901”. We believe that as the proportion of internal use in the company continues to increase, the company's farming efficiency and costs are expected to improve steadily. 2) In recent years, the company has actively promoted domestic and overseas promotion and sales of chicken breeders. According to the North Fujian Daily, by the end of '23, “Shengze 901” parent breeding chicken seedlings had been sold to 14 provinces across the country; in May '24, 3,500 sets of “Shengze 901” parent breeding chicken seedlings were exported to Tanzania for the first time. Looking ahead, we believe that the company develops and produces its own chickens. While ensuring the steady expansion of breeding production capacity, it is also expected that it will continue to contribute to performance growth from endogenesis and extension.
Profit forecasting and valuation
The current stock price corresponds to 2024/25 11/10 times P/E. We will keep our net profit of 1.75/ 1.99 billion yuan unchanged in 2024/25, and maintain a target price of 23 yuan. The target price corresponds to 16 times P/E in 2024, with 46% upward space. Maintain outperforming industry ratings.
risks
Risk of animal epidemics; risk of chicken price reversal falling short of expectations; risk of feed price fluctuations.