The company's recent situation
New Hope recently attended the CICC Mid-Year 24 Strategy Conference. The company exchanged views with participating investors on cost reduction and efficiency, debt reduction plans, and long-term growth. We believe that the company's production and operation improvements and leverage reduction are progressing in an orderly manner, and the balance sheet is expected to be gradually repaired as the cycle recovers this year.
reviews
Continued improvements in production management have led to a reduction in costs, and the optimization trend is expected to be maintained. On the one hand, the company's production management indicators have improved significantly recently. The company's fattening survival rate in June was 92-93%, up 7-8ppt; the meat ratio was 2.64, down about 0.1; PSY was about 25 heads, up 1.5 heads year on year; the company promoted the decline in the original value of sows through fine management, and we expect to further drive down the cost of weaned piglets and commercial pigs thereafter. The cost of reinforcing reserve sows in June was reduced to 2,380 yuan/head. On the other hand, the company's cost reduction is progressing rapidly. According to the company's announcement, the cost of operating the farm line in May decreased by 1.1 yuan/kg to 14.7 yuan/kg compared to January; the cost of weaned piglets in May fell to 288 yuan/head. The company expects to reduce the breeding cost of commercial pigs released in July-August by 0.4-0.5 yuan/kg. Looking ahead, we believe there is still room for reduction in operating field costs as the company's production improves and feed costs decline.
Improve profits, actively reduce leverage, and curb capital expenses to jointly help repair the balance sheet. According to the company announcement, the company plans to reduce the balance ratio to 70%/65% in 2024/25. First, the recent rise in pig prices is compounded by the decline in the company's breeding costs, and the company expects profits to improve. According to the company's announcement, the unaudited profit for May was 250-300 million yuan, and the profit forecast for June is good. Second, the company is promoting debt reduction projects, and external funding helps reduce the bar. According to the company's announcement, the company is promoting fixed issuance and is also gradually introducing strategic investors. Third, the company collects capital expenses, and uses or returns funds to reduce liabilities. According to the company's announcement, the company has no large-scale capital expenditure plans for the next two years, with an annual capital expenditure of 20-30 billion yuan, of which 1 billion yuan will be spent on maintenance, technical reform, and closing expenses. In summary, we believe that the company's balance sheet is expected to recover steadily as pig prices recover and profits improve.
The sow production capacity structure has been optimized, the overall stability is stable, and the energy reserve has increased in 25 years. Recently, the overall production capacity of the company can breed sows is relatively stable, and the target of listing for 24 years is basically guaranteed. According to the company's announcement, the company was able to breed 730,000 sows in June, a slight increase of 10,000 from the end of 1Q24; the company released 7.402 million pigs in January-May, and about 7 million commercial pigs in June. We judge that the target for listing this year is 14-15 million heads guaranteed. Looking ahead, the company is promoting production management adjustments and is expected to return to growth in 2025. According to the company's announcement, the company is promoting positive pressure ventilation and small-unit housing renovation. It is expected to complete the renovation and gradually resume production in September. The plan to raise sows is mainly placed in 4Q24, which we believe will help support the company's return to growth in 25 years.
Profit forecasting and valuation
We maintain our 24/25 net profit forecast of $18/19 billion. The current stock price corresponds to 24/22 times P/E in 2024/25, maintaining an outperforming industry rating. Maintain the target price of 12.5 yuan, corresponding to 32/30 times P/E in 2024/25, corresponding to 33.5% upward space.
risks
Risk of market growth and cost control falling short of expectations; risk of financial security; risk of animal disease.