Key points of investment
Event: The company released the monthly sales report for May
(1) Broiler: In May 2024, the company sold 41.4777 million broilers, up 13.74% year on year, with sales revenue of 1,174 billion yuan; in May, the average sales price of the company's chicken was 13.50 yuan/kg, up 3.69% from April. From January to May 2024, the company sold 194.3359 million broilers, up 10.79% year on year; from January to May, it achieved cumulative sales revenue of 5.485 billion yuan, an increase of 9.59% year on year.
(2) Pigs: In May 2024, 93,700 pork heads were sold, up 225.35% year on year, with sales revenue of 194 million yuan; in May, the average sales price of the company's hairy pigs was 16.38 yuan/kg, up 5.41% from April.
From January to May 2024, the company sold a total of 356,900 pork heads, an increase of 17.36%; in January-May, the company achieved cumulative sales revenue of 657 million yuan, an increase of 40.38% over the previous year.
Scaling up the scale to reduce costs, and yellow feather chicken production performance continues to improve
The company's integrated chicken breeding subsidiaries have been developing steadily in recent years in South China, Southwest China, and Central China. The company's yellow feather chicken is expected to maintain an annual growth target of 8%-10%. In terms of internal production management, relying on the progress of production technology and the improvement of management efficiency, the company's production performance of yellow feather broilers remained at a high level; due to the decline in the price of feed ingredients, the company's production costs dropped significantly. In the first quarter of 2024, the full cost of the company's broilers fell to around 6.3 yuan/kg. Among them, the total cost of the company's broilers fell below 6.1 yuan/kg in March.
Yellow feather may face a reversal, and the company's profitability is expected to increase
The number of chickens raised by the birth parents has continued to decline since 2022, and is currently at a low level since the beginning of 2018. From the perspective of production capacity, we believe that the yellow feather chicken industry chain is expected to usher in a cyclical reversal; at the same time, considering the reversal of the 2024 pig cycle, yellow chicken prices are expected to resonate with pig prices in the second half of the year. As one of the leading yellow chicken companies, we are optimistic about the profit increase in the company's yellow feather chicken business based on the judgment on the price of yellow feather chicken, the increase in the company's sales volume, and the reduction in breeding costs.
Pig prices are rising, and the company's pig breeding business is expected to turn a loss into a profit
The company currently lays out pig breeding production capacity in regions such as Jiangsu and Anhui. It has built a breeding pig production capacity of 130,000 heads and an annual production capacity of 1.6 million commercial pigs. The company's annual target for 2024 is 1-1.2 million pigs, an increase of 16.95%-40.33% over the previous year. Benefiting from improved production performance and falling feed prices, the company's total pig breeding cost was around 17.6 yuan/kg in the first quarter of '24. Of these, it fell below 16 yuan/kg in March, and the full cost target for the whole year was 16 yuan/kg. As pig prices begin to rise and the company's breeding costs fall, the company's pig business is expected to turn a loss into a profit.
Profit prediction and valuation: Based on the yellow feather chicken and pig cycle reversal logic and the continuous improvement of the company's breeding costs, we maintain the original forecast and are optimistic that the company's profit will recover significantly in 2024/25. It is estimated that in 2024/25/26, net profit due to mother will be 15.58/13.20/1,450 billion yuan, EPS will be 1.88/1.60/1.75 yuan, respectively. The current stock price will correspond to PE 12.16/14.36/13.07 times, respectively, maintaining the “buy” rating.
Risk warning: risk of animal diseases; prices of raw pigs and yellow feather chickens fall short of expectations; prices of raw materials have risen sharply.