Seedling prices dragged down Q2 performance, and parent-generation chicken seedlings had an obvious advantage

24Q2 The company's profits continued to be under pressure, mainly due to a marked decline in the sales price of chicken seedlings and the contraction of the company's chicken seedlings at the same time. The domestic supply of high-quality parent chicken seedlings is still tight, and the company's Li Feng variety has obvious advantages. We maintain our profit forecast. The company's net profit for 2024/25/26 is 0.715/0.701/0.504 billion yuan, respectively, and the corresponding EPS is 0.65/0.63/0.46 yuan. Comparable companies agreed to expect 14 times PE in 2024. Considering that domestic production capacity of high-quality ancestral chicken is still scarce and that the price of the Probiotic Li & Fung variety is expected to remain high, we gave Probiotic 2024 17 times the PE, corresponding to the target price of 11.05 yuan, maintaining a “buy” rating.

Seedling prices dragged down Q2 profits, and the parent-generation chicken seedlings advantage still exists

24H1 achieved revenue of 1.376 billion yuan (yoy -26%) and net profit of 0.183 billion yuan (yoy -68%), of which Q2 achieved revenue of 0.688 billion yuan (yoy -27%) and net profit of 73.62 million yuan (yoy -71%).

The decline in revenue and profit of 24H1 and Q2 companies was mainly due to a decrease in the sales volume and price of chicken seedlings. 24H1 sold 0.277 billion white feather broiler seedlings, -16% year over year, and -22% year over year; of these, Q2 sold 0.147 billion white feather broiler seedlings, -17% year over year, and -24% year over year. In 24Q2, we estimate that the company's parent-generation chicken seedlings business is still the main source of profit, with a profit of about 5,800 to 68 million yuan, mainly due to the fact that although the price of parent chicken seedlings fell by more than 30% year on year, it was still relatively high (about 30 to 40 yuan/set); the commercial chicken surrogate business profit was about 500 to 15 million yuan, mainly due to the decline in the price of feed ingredients combined with the company's continuous clean-up of the epidemic, etc., which caused the company's commercial chicken seedlings to drop about 10% year on year, so the company was still profitable even though the sales price dropped by more than 25% year on year; the pig breeding business has already achieved profit Turn a loss into a small profit.

Lifeng and Yibeng 909 have excellent performance, and can be expected to continue to expand in scale

The white feather chicken seedling product “Lifeng” currently sold by the company has a clear competitive advantage. We estimate that in 2023, its parent's share of the chicken seedlings market will be about 20% and the commercial chicken seedlings market share will be about 8%; at the same time, the “Probiotic 909” independently developed by the company is well recognized by the market for its excellent production performance. Judging from the company's sales growth rate and product performance, we believe that the company's size and market share can be expected to continue to increase.

The supply of high-quality varieties is tight, and I am optimistic about the price of chicken seedlings created by the company's parents

Recently, the sales price of the company's parent-generation chicken seedlings has risen significantly. In June, the price of parent-generation chicken seedlings has risen to more than 50 yuan/set, an increase of more than 60% over the previous month, which is close to the high price in 2023. We expect that the price of parent-generation chicken seedlings will continue to rise in July, and orders for 24Q3 are basically full. We analyzed that the tight supply of high-quality chicken seedlings due to the continued decline in imports of ancestral white feather broilers since May 2022 is the main reason for the increase in the price of the company's parent chicken seedlings. Looking backwards, Oklahoma in the US is still the only state that can be introduced in the country. The supply of imported varieties may continue to be tight, and the company's breed advantage is expected to keep the price of chicken seedlings relatively high for parents; at the same time, the amount of ancestral renewal in 2022 may gradually be transmitted to the commercial chicken seedlings process, or drive up the price of the company's commercial chicken seedlings.

Risk warning: chicken price rise/cost falling short of expectations, sudden large-scale bird flu outbreaks, etc.