Q2 Strongly reversed losses, and the company ranked among the top profits from raising pigs

The company released the 24H1 performance forecast. It is expected that 24H1 will achieve net profit of 12.5 to 1.5 billion yuan, of which Q2 is expected to achieve net profit of 24.9 to 2.74 billion yuan, reversing losses compared to the same period last month. Considering the accelerated decline in the company's costs, we raised the company's 2024 profit forecast to 10 billion yuan, keeping the 2025 and 2026 profit forecasts unchanged. The corresponding company's 24/25/26 BVPS was 6.48/8.29/10.16 yuan, respectively. Referring to the comparable company Wind's consistent expectation of 3.55X PB, considering the company's stable cost advantage, the company was given 3.94 times PB in 2024 to maintain the “buy” rating.

Pig and chicken resonance+ cost improvement, Q2 net profit to mother reversed the month-on-month loss, rising pig and yellow chicken prices, and the steady expansion of the company's breeding costs were the main reasons why Wen's 24Q2 reversed losses and led to 24H1's overall loss reversal. Looking at the breakdown, we estimate that Q2's pig farming profit is about 17 to 1.9 billion yuan, corresponding to the full cost of pig raising is about 14.2 to 14.7 yuan/kg (down about 1.0 to 1.2 yuan/kg from Q1). Among them, if expenses such as equity incentives and bonus expenses at the end of the quarter are excluded, the company's comprehensive pig farming cost may have dropped below 14 yuan/kg in June (excluding headquarters expenses). Low cost+excellent selling price. We estimate that 24Q2's pigs are expected to achieve an average profit level of 250 yuan/head, ranking among 14 listed pig companies and in the 56% fraction of the three-round cycle (since June 2010). We expect the Q2 Yellow Chicken business to make a profit of 7 to 0.9 billion yuan, corresponding to a cost of 12.2 to 12.7 yuan/kg (down about 0.7 to 1 yuan/kg from Q1), and an average profit of about 3 yuan/feather, which is the company's high profit level since 2013; other waterfowl, animal insurance and other businesses and headquarters expenses are offset to profit about 0.1 billion yuan.

The current pig cycle has not yet peaked. The Ministry of Agriculture and Rural Affairs monitors that the 23H2 to 24Q1 quarterly range of sows can accelerate degeneration, corresponding to the 24H2 theoretical fat pig supply; at the same time, this year's secondary fattening is relatively cautious, and the pressure for secondary fattening earlier has been released; in addition, the second half of the year is the peak season for traditional consumption. We expect that the 24H2 pig supply and demand pattern may tighten, which is expected to drive pig prices to record highs in this cycle. At the same time, it will take time for pig farmers to recover their balance sheets due to prolonged losses in the early stages, and the industry is also relatively cautious about pig price expectations in the future. We believe that sow storage will be clearly difficult to repair in the short term, which is expected to drive pig prices to exceed expectations next year. Pig companies may enjoy a long period of profit recovery in this cycle. The cost of Wen's shares is excellent, the degree of return is high, and profit flexibility is expected to be released at an accelerated pace.

The balance sheet is expected to be repaired, and the company guarantees high-quality development

The company's 24Q1 balance ratio was 63.4%. We expect the company's balance ratio to drop to less than 60% in Q2 along with rising pig and yellow chicken prices and continuous cost optimization. As of the end of April, the company was able to breed about 1.57 million sows, an increase of about 0.02 million over the end of 2023. The company pursues high-quality development. The results of improving the quality and efficiency of sows were obvious in the first half of the year, and the strengthening of financial strength is expected to support the steady expansion of the company's production capacity.

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.