Incident: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 52.296 billion yuan, yoy -0.84%, net profit of 2.125 billion yuan to mother, and yoy 93.15%.

The feed business increased rapidly, and sales of aquatic and poultry products increased rapidly. The company 24H1 achieved feed sales revenue of 41.341 billion yuan, a year-on-year decline of 3.19%, mainly due to lower prices of bulk raw materials and lower feed sales unit prices. In terms of sales volume, the company's feed sales continued to grow against the trend. 24H1 achieved export feed sales of 11.81 million tons, an increase of 8% over the same period (the country's industrial feed production fell 4.1% during the same period). Among them, aquatic products, poultry, and pig feed increased 10%, 14%, and -7%, respectively. Based on rapid adjustments to early sales strategies, general water supplies achieved restorative growth of 15-20%. Poultry feed maintained a competitive advantage and continued to seize market share. Pig feed declined due to a decline in the stocks of small and medium-sized farmers. The company has actively adjusted its customer structure and begun to set up large-scale farming groups. In terms of profit, the company's gross margin of feed continued to rise. The gross profit margin of 24H1's feed business was 9.76%, an increase of 1.23 percentage points over the full year of '23, and an increase of 0.92 percentage points over the same period last year. The company has achieved feed sales of more than 1 million tons in overseas regions, with a year-on-year increase of 30%. Profitability is steadily increasing. Overseas feed sales are expected to open up new growth space for the company. We judge that the company's main feed business is expected to maintain a strong upward trend in volume throughout the year 24.

Breeding has reversed losses, and animal protection has continued to develop and expand the development of seedlings. In terms of pig breeding, the company released 2.7 million pigs on 24H1. The team's expertise continued to improve, breeding costs were continuously optimized. Combined, pig prices experienced a cycle reversal from mid-late May. The company's pig business turned a loss into a profit in the first half of the year, and is expected to continue to contribute to profits in the second half of the year. In terms of aquaculture, the company's raw fish business reduced losses in the first half of the year, and shrimp farming costs continued to be optimized.

As an important supporting industry for feed farming, the company continues to invest in R&D and actively develop new varieties and products. 24H1's Animal Insurance and Seedling achieved operating income of 0.7 billion yuan and 466 million yuan respectively.

We believe that the company's multi-dimensional core cost advantage will continue to protect the company's main feed business and continue to increase its market share in the fierce competition. The specialized capabilities of the breeding business are constantly improving, animal protection and breeding are improving comprehensive service capabilities, and we are optimistic about the company's long-term development potential.

Company profit forecast and investment rating: We believe that the company's feed business is expected to maintain a sharp rise in profit throughout the year, the farming sector has reversed losses, and is expected to continue to contribute profits in the second half of the year. The company has a core competitive advantage and is improving in the long term. The company's net profit for 24-26 is estimated to be 40.98, 51.68, and 6.017 billion yuan, respectively, EPS of 2.46, 3.11, and 3.62 yuan, and PE of 18, 14, and 12 times, maintaining a “highly recommended” rating.

Risk warning: The company's feed sales fall short of expectations, the risk of pig price fluctuations, etc.