24Q2 expects profit of 1.08 to 0.132 billion yuan, reversing losses year-on-year and month-on-month due to rising pig prices combined with cost improvements. The company expects to achieve net profit of 1.08 to 0.132 billion yuan to mother in 24Q2, reversing losses year-on-year and month-on-month. Considering the rise in pig prices in 2024 and the continuous improvement of company costs, we raised the company's profit forecast for 2024 to 0.762 billion yuan, keeping the profit forecasts unchanged for 2025 and 2026. The corresponding BVPS was 9.44, 12.23, and 15.92 yuan, respectively. Referring to the average valuation value of a comparable company in 2024 of 3.35XPB, considering the company's strong farming cost advantage and financial stability, the company was given 5.04XPB in 2024, corresponding to a target price of 47.58 yuan. Maintain a “buy” rating.

Higher pig prices combined with cost improvements. The company reversed losses year-on-year and month-on-month in 24Q2, and Shennong Group issued performance forecasts. 24H1 is expected to achieve net profit of 1.04 to 0.128 billion yuan to mother, reversing losses over the previous year. 24Q2 is expected to achieve a net profit of 1.08 to 0.132 billion yuan, reversing year-on-year losses and month-on-month losses; of these, the pig farming sector contributed most of the profits. The rise in pig prices compounded the company's cost improvement. We estimate that the company's 24Q2 pig farming sector achieved a profit of about 0.132 billion yuan, corresponding to the full cost of raising pigs of 13.9 yuan/kg.

The feed, slaughter, and food sectors each recorded losses of varying degrees due to the year-on-year decline in feed sales, low slaughter and production, and the fact that production capacity in the food business is still climbing. It is estimated that the total loss of the three is about 0.01-0.025 billion yuan.

Low-cost piglets helped, compounded by falling feed prices. The company's cost advantage stabilized, and the company focused on lean internal skills. We estimate that the company's total cost of raising pigs fell from 14.5 yuan/kg in 2024Q1 to 13.7 yuan/kg in June 2024, mainly due to a decrease in feed and pig breeding costs. We estimate that feed costs will drop by about 0.62 yuan/kg, and pig fry costs will drop by about 0.21 yuan/kg. The company purchased about 0.18 million low-priced piglets in December of last year and January of this year. This portion of piglets is expected to be released centrally in June and July of this year. We expect that this portion of low-priced piglets will help the company to raise pigs by about 0.1 to 0.2 yuan/kg in June. However, even without the addition of low-priced piglets, the company's total cost of raising pigs in June was still below 14 yuan/kg, and the company's cost advantage is still stable. Looking at the whole year, we expect a high probability of achieving the company's cost target of 14 yuan/kg.

The target price is 47.58 yuan, maintaining the “buy” rating

The company is a scarce breed growing in this cycle. It has high quality growth & leading cost, and has a high degree of fulfillment. The company sold a total of 1.09 million pigs in 24H1, an increase of 63% over the previous year, and the 24Q2 cost has also dropped below 14 yuan/kg. Considering the rise in pig prices from January to June 2024, pig prices are expected to continue to improve in the second half of the year, and the company's costs continue to improve, we raised the company's profit forecast for 2024 to 0.762 billion yuan, keeping the profit forecast for 2025 and 2026 unchanged. Referring to the average valuation value of comparable companies in 2024, considering the company's strong farming cost advantage, the company was given 5.04XPB in 2024, corresponding to a target price of 47.58 yuan. Maintain a “buy” rating.

Risk warning: the number of pigs released falls short of expectations, pig prices fall short of expectations, repeated non-plague outbreaks, large-scale animal disease outbreaks, the pace of expansion does not match market demand, etc.