Matters:

Company announcement: The company announced its 2024 semi-annual performance forecast. It is expected that the net profit for the first half of 2024 will be 1.25 billion yuan to 1.5 billion yuan, and a loss of 4.689 billion yuan for the same period last year, turning a year-on-year loss into a profit.

Guoxin Agriculture's opinion: 1) Wen's shares announced the 2024 semi-annual results forecast. The company expects the company's 2024Q2 net profit profit of 2.486-2.736 billion yuan. The same period last year was a loss of 1.94 billion yuan, turning a year-on-year loss into a profit. We believe that the company's performance is excellent. According to estimates, the company's average profit from fattening pig breeding in 2024Q2 is close to 220-240 yuan, corresponding to the complete cost of pig breeding close to 14.5 yuan/kg, and the cost has declined steadily. 2) The company has sufficient reserves of pig production capacity. The current pig breeding farm has a completed production capacity of about 46 million heads, and the total effective breeding capacity during the fattening stage is about 35 million heads. It is expected that future sales will maintain steady growth, and will benefit from the sharp rise in volume and price dividends brought about by the recovery in pig prices. 3) Risk warning: An uncontrollable pig epidemic death occurred in the industry, cost pressure brought about by an uncontrollable rise in raw food prices, and profit fluctuations caused by large fluctuations in pig prices. 4) Investment advice: Wen's Co., Ltd. performed well in the first half of 2024. The cost of breeding pigs and yellow chickens declined steadily, which is expected to benefit from the upward trend in pig prices. We maintain the “better than market” rating and maintain profit forecasts. We expect the company's net profit to be 7.59/15.82/12.03 billion yuan for 24-26, corresponding to the current stock price PE of 17/8/11 X.

Commentary:

The company's 2024H1 performance reversed year-on-year losses, and pig breeding and yellow chicken breeding costs declined steadily, and Wen's shares issued a 2024 semi-annual performance forecast. The company's 2024Q2 net profit to mother is estimated to be 2.486-2.736 billion yuan. The loss for the same period last year was 1.94 billion yuan, turning a year-on-year loss into a profit. We believe that the company's performance is excellent. According to estimates, it is estimated that the company's 2024Q2 average fat pig breeding profit is close to 220-240 yuan, corresponding to 2024Q2 pig breeding is close to 14.5 yuan/kg, and the average sales price of commercial pigs is close to 16.34 yuan/kg, which has a certain premium advantage in the southern sales area; the company's average yellow chicken breeding profit in 2024Q2 is close to 3-3.5 yuan, corresponding to 2024Q2, the full cost of breeding yellow chickens is close to 12 yuan/kg, and the company's breeding costs for both pigs and yellow chickens will remain steady in 2024Q2 A downward trend.

Pig breeding performance has improved markedly, and the downward trend in costs is expected to continue the steady improvement in the company's breeding performance. According to the company's announcement, the number of the company's Wo Jun Kenshi has risen to 11.3 in May 2024; the production protection death rate is about 7%; PSY is about 23; the marketing rate is about 92%; and the feed-to-meat ratio is about 2.62. As the company's basic production management continues to be optimized and the price of superimposed feed ingredients falls, the company's pig fry production cost fell to about 330 yuan/head in May 2024, down 60 yuan/head compared to December last year. It is expected that the improvement in pig breeding costs will gradually be reflected in the cost of commercial pigs sold in the future. As the company's production stability improves, the company's capacity utilization rate continues to increase, fixed costs and cost sharing are reduced, and farming costs are expected to continue to decline.

In terms of production capacity reserves, according to the company's announcement in May 2024, the current pig breeding farm has a completed production capacity of about 46 million heads (that is, when the company's pig breeding farm is currently at full capacity, the amount of commercial pig seedlings that can be raised is 46 million heads according to normal production performance), and the total effective breeding capacity during the fattening stage is about 35 million heads. The company's existing pig breeding farm is sufficient. If it is necessary to quickly increase the production volume, it is only necessary to allocate an increase in the number of sows capable of breeding and the number of cooperative farmers, and there is no need to increase new fixed asset investment.

Yellow chicken farming operations are steady, and it is expected to simultaneously benefit from the recovery in pig prices in the second half of 2023, with a year-on-year increase of 9.51%, accounting for 9.51% of the total number of broilers (including white feather, yellow feather, and small white feather broilers) sold in the country, ranking first among listed companies. In 2024, the company is expected to increase sales by 5%-10% on the basis of 2023, and is expected to maintain a steady growth rate. Production in the company's poultry industry is stable, and the cost of chicken is down 0.66% year on year in 2023. As of April 2024, the company has added two new national livestock and poultry varieties, namely Tianlu Yellow Chicken No. 2 and Wen's Ephedra Chicken No. 3. The company has increased the number of new varieties of yellow feather broiler that have been approved by the state to 9. It has rich resources for yellow feather broiler breeds, and is leading the breed breeding technology industry.

Investment advice: continue to focus on recommendations

Wen's Co., Ltd. performed well in the first half of 2024. The cost of breeding pigs and yellow chickens declined steadily, which is expected to benefit from the upward trend in pig prices. We maintain the “better than market” rating and maintain profit forecasts. We expect the company's net profit to be 7.59/15.82/12.03 billion yuan for 24-26, corresponding to the current stock price PE of 17/8/11 X.

Risk warning

There have been uncontrollable pig deaths in the industry, cost pressure brought about by uncontrolled increases in raw food prices, and profit fluctuations caused by large fluctuations in pig prices.