The company's recent situation
Muyuan Co., Ltd. recently attended the CICC Mid-Year Strategy Meeting. The company exchanged views with participating investors on areas such as increasing efficiency and reducing costs, expanding growth, and reducing leverage. We believe that Makihara is representative of a low-cost, large-scale pig farming leader. Scarcity or gradual development, we are optimistic about the rapid restoration of the company's balance sheet this year.
reviews
Production management was rapidly optimized, and the full cost target of 13 yuan/kg at the end of the year can be expected to be achieved. On the one hand, the company's production indicators have gradually recovered recently, and the cost level has improved rapidly. According to the company's announcement on June 6, the company's full cost in May was 14.3 yuan/kg, down 0.8/0.5 yuan/kg from March/April. On the other hand, with reduced feed costs and improved farming efficiency, the full cost target of 13 yuan/kg can be expected by the end of the year. In terms of feed, according to Yongyi, feed prices for fattening pigs fell 305 yuan/ton year on year on June 13, and we estimate that the contribution cost is expected to drop by about 0.5-0.7 yuan/kg. In terms of farming efficiency, the overall survival rate in May 23/May 24 was about 86%/83%, PSY was 28/26-27, and there is still some room for recovery.
We believe that if the company's production efficiency is improved and epidemic prevention and purification continue to advance, it is expected to further drive down costs.
The steady expansion of sow production capacity supports the annual production volume of about 70 million heads. First, the company's schedule is steady, or the utilization rate of sows that can be bred this year and the utilization rate of sow houses can be raised moderately. According to the company's announcement on May 17, 3.2 million sows can be raised in April, an increase of about 70,000 over the end of 23. We believe or support that the company will release about 70 million heads throughout the year. At the same time, as the company's production, operation and capital conditions improve, it may be possible to breed sows, or there is still room for steady growth. Second, the company has sufficient fattening production capacity and has upward flexibility. According to the company's announcement on ****e company's pig production capacity in May was 80 million heads/year. By improving production performance, strengthening management capacity, and increasing the turnover ratio of pig houses, it is expected that the number of pigs released will increase steadily while reducing dependence on newly built pig houses.
The industry has entered a stage of high-quality development, and low-cost, large-scale pig farming enterprises may highlight scarcity. 1) In terms of first-mover advantage, the Group's market expansion has moved from rapid growth to a stage of high-quality growth. For example, during the non-plague period, Muyuan reaped dividends for epidemic prevention and production expansion through advantages such as management and breeding, and reaped capital support dividends through capital market fund-raising. 2) In terms of current advantages, Muyuan maintains the low cost advantage of the first tier of the industry. We judge to help the company reap average excess revenue in the midst of cyclical fluctuations and strengthen its balance sheet advantage through large-scale listing. 3) Overall, we believe that the industry has returned from a “capital competition” to “cost competition,” and that strategic opportunities such as capital dividends and epidemic prevention dividends accumulated during the non-plague period are narrowing marginally, and the trend represented by Muyuan has followed the trend to grow into a low-cost, large-scale leading enterprise or highlight scarcity.
Profit forecasting and valuation
We maintain our 2024/25 net profit forecast of $142.6/16.96 billion. The current stock price corresponds to 17/14 times P/E in 2024/25, maintaining an outperforming industry rating. Maintain the target price of 56 yuan, corresponding to 21/18 times P/E in 2024/25, corresponding to 25.5% upward space.
risks
Pig prices and release volumes fell short of expectations; risk of the epidemic; raw material prices rose more than expected.