The company discloses its 2024 semi-annual report. The company achieved operating income of 52.296 billion yuan in the first half of 2024, or -0.84% year-on-year, with net profit of 2.125 billion yuan, an increase of 93.15% year-on-year and an EPS of 1.28 yuan. The weighted average ROE was 10.56%, up 4.33 percentage points year-on-year. The company achieved operating income of 29.124 billion yuan in the second quarter of 2024, -0.87% year-on-year, and attributable net profit of 1.264 billion yuan, an increase of 82.66% over the previous year.

The feed business bucked the trend and further increased its market share. In the first half of 2024, the country's total industrial feed output was 145.39 million tons, a year-on-year decrease of 4.1%. In the first half of 2024, the company achieved feed sales of about 11.79 million tons (including 0.98 million tons of internal farming consumption), an increase of about 8.5% over the previous year, with export sales of 10.81 million tons, an increase of 8% over the previous year, further increasing the market share of the company's feed business. The company's feed product sales revenue in the first half of 2024 was 41.341 billion yuan, -3.19% year-on-year. The main reason for the slight year-on-year decline in feed revenue was due to a drop in the prices of raw materials such as corn, soybean meal, and fishmeal in the upstream feed, causing the price of feed products to follow suit. The overall gross profit margin of feed was 9.76%, an increase of 0.92 percentage points over the previous year.

Sales of aquatic products and poultry are growing at an impressive rate. In the first half of 2024, the country's aquafeed production fell 2.4% year on year. In this context, the company's aquatic feed export sales increased by about 10% year-on-year in the first half of 2024, achieving contrarian growth. Among them, general water feed increased 15% to 20% year on year; shrimp and crab feed increased 8% year on year (of which South American white prawn feed increased about 20% year on year); crayfish feed declined year on year due to poor peak season due to excessive farming density combined with abnormal weather effects; and high-grade puffed fish (special water fish) remained flat and increased slightly year on year. In the first half of 2024, the country's meat and poultry feed production increased 1.1% year on year, egg and poultry feed production decreased 4.4% year on year, and pig feed production decreased 7.3% year on year. The company's export sales of poultry feed increased by about 14% year on year in the first half of 2024, and pig feed fell 7% year on year. The company's poultry feed sales growth rate in the first half of the year was much higher than that of the industry, while the growth rate of pig feed sales was roughly the same as that of the industry.

There was a slight correction in the nursery and animal protection business. The company's animal insurance business achieved revenue of 0.466 billion yuan in the first half of 2024, a year-on-year decrease of 23%. Affected by the decrease in the intensity of breeding and release of South American white prawns, the company's seedling business achieved revenue of about 0.7 billion yuan, a slight decrease over the previous year.

Profitability in the farming business improved markedly year over year. In terms of pig breeding business, the company released about 2.7 million pigs in the first half of 2024, an increase of about 0.5 million over the same period last year, turning a year-on-year loss into a profit. In terms of aquaculture, the company's main aquaculture varieties are currently specialty aquatic products such as raw fish and prawns. Among them, raw fish prices picked up in the first half of the year, and the raw fish farming business lost money.

Investment advice

We expect the company's net profit to return to the parent company in 2024-2026 to 3.908/5.321/6.337 billion yuan, corresponding EPS of 2.35/3.20/3.81 yuan, and the current stock price corresponding to 2024 PE is 18 times higher, maintaining a “buy-A” rating.

Risk warning: Risk of lower than expected livestock and poultry feed sales due to the livestock and poultry epidemic, lower than expected sales of aquatic feed due to extreme weather, and price fluctuations of raw materials such as fishmeal and corn and soybean meal.