When facing thousands of listed company announcements every day, which ones should you read? What are the key points to take away from the dozens or hundreds of pages of material announcements? Are the many professional terms in the announcements bullish or bearish? Check out Caixin's "Quick Read Announcement" column, where our reporters across the country will provide you with accurate, fast and professional interpretations on the night of the announcement.

Caixin reported on August 2 that under the double benefit of rising pork prices and decreasing farming costs, Muyuan Foods (002714.SZ) turned from loss to profit in the first half of the year, with Q2 profits exceeding 3 billion yuan.

Looking ahead to the second half of the year, multiple interviews with industry insiders conducted by Caixin revealed that, against the backdrop of improving supply and demand fundamentals, the price of live pigs in August is expected to rise, and the profitability of pig companies in Q3 is expected to be stronger than in Q2, with the peak in pig company profits expected to come in the second half of this year. In fact, after Muyuan Foods released its half-year results forecast, multiple institutions made predictions for its full-year profits in July, with the highest value reaching 18.8 billion yuan.

During the conference call to discuss the half-year financial results held in the evening of August 2, Qin Jun, the secretary of the company's board of directors, expressed optimism about the price of live pigs in the second half of the year and gave a detailed explanation of the issues of concern to investors.

With both volume and price rising while costs decrease, Muyuan Foods earned over 3 billion yuan in Q2.

According to the Muyuan Foods half-year report, the company achieved total operating income of 56.866 billion yuan in H1 2024, a year-on-year increase of 9.63%, and realized a net profit attributable to shareholders of 829 million yuan, a year-on-year increase of 129.84%. The net profit in the second quarter reached 3.208 billion yuan.

Caixin reporters and multiple industry insiders communicated and found out that Muyuan Foods' performance in Q2 exceeded expectations, which was a factor in several institutions raising their full-year performance forecasts.

Looking at the industry, National Bureau of Statistics monitoring data shows that pig prices have risen for four consecutive months, with a 10.4% increase in June. Muyuan Foods' monthly sales average price has also increased for six consecutive months, reaching 17.73 yuan/Kg in June, up 4.31 yuan/Kg from December last year.

With prices rising, the company's sales have also increased significantly, boosting revenue. The announcement shows that the company's pig sales increased by 2.123 million heads compared to the same period last year, reaching 32.388 million heads, including 28.982 million commercial pigs, 3.093 million piglets and 0.312 million breeding pigs.

In addition, falling raw material prices, with continuously decreasing farming cost, have provided another important support for the company's performance growth. According to data from the China Feed Industry Association, the prices of main feed raw materials such as corn and soybean meal fell sharply in the first half of this year, with average prices of corn and soybean meal purchases by feed companies reaching 2524 yuan/ton and 3680 yuan/ton respectively, down 13.2% and 17% YoY.

According to reports, the fully loaded cost of farming a pig in Muyuan Foods in June has fallen to nearly 14 yuan/kg, a decrease of 0.3 yuan/kg MoM and the lowest level since 2023. The company stated on the conference call that "the average fully loaded cost of farming a pig in June 2024 fell by about 1.8 yuan/kg compared to January to February, of which production improvement and reduction in operating expenses contributed to about 60%, while feed costs were reduced about 40%. It is expected that the contribution of production improvement to the cost savings ratio will further increase in the future.

According to the financial report, the company stated that, with continued investment in disease prevention and control, nutritional formulas, boar breeding, automation and information technology, and talent development, as well as continued optimization of each link in production management, the company's production efficiency will gradually improve. At the same time, the gradual decline in feed prices will be reflected in the farming cost, and the fully loaded cost of pig farming is expected to further decrease.

While the profitability of pig farming continues to rise, the company's slaughtering business is still under pressure.

The financial report shows that the company slaughtered 5.415 million pigs during the reporting period, with sales of fresh and frozen pork totaling 0.62 million tonnes and slaughtering business revenue reaching 9.981 billion yuan, with a gross margin of -0.42%, a decrease of 1.41 percentage points YoY.

Company representatives stated, "the slaughtering business lost about 500 million yuan in the first half of the year, with losses in the first and second quarters being about the same, which is lower than our expectations. We hope to perform better in the second half of the year based on this level."

As the profitability of the pig farming business continues to rise, the slaughtering business is still under pressure. The financial statement shows that the company slaughtered a total of 5.415 million pigs in the reporting period, selling a total of 0.62 million tons of fresh and frozen pork and generating operating income of 9.981 billion yuan from the slaughtering business. The gross profit margin was -0.42%, a decline of 1.41 percentage points compared to the same period last year. The company commented that "the slaughtering business lost about 500 million yuan in H1, with losses in Q1 and Q2 being roughly the same, which was lower than we expected. We hope to achieve better results in the second half of the year based on this level."

Regarding specific measures for improving the loss of the animal slaughter business, it further stated, "These two years have been addressing several issues that we have been discussing, internal operational issues, external customer volume, and issues related to utilization rate. Currently, there is still a certain gap between the actual production capacity utilization rate of the animal slaughter meat business and the ideal one. In fact, the core work of the entire animal slaughter sector for the next few years should be on this."

As for the slaughter capacity, as of the end of June 2024, the company has put into production a total of 10 slaughterhouses, with a production capacity of 29 million heads per year.

The debt ratio is decreasing, and the second half of the year may become the peak of full-year earnings.

The improvement in Muyuan Foods' profitability is also reflected in the financial situation. Both the company's debt ratio and cash flow have been optimized.

According to the financial report, as of the end of the reporting period, the company held cash and cash equivalents of 20.36 billion yuan, an increase of 0.931 billion yuan from the end of 2023. The assets-to-liabilities ratio was 61.81%, down 1.78 percentage points from the end of the first quarter. In the first half of 2024, the net cash flow from operating activities of the company was 15.474 billion yuan, with the second quarter exceeding 10 billion yuan.

"With the slowing down of construction speed in recent years, the use of cash after profitability must be first used to reduce leverage," a company spokesperson disclosed on a conference call.

Looking ahead to the second half of the year, according to multiple industry insiders, with the improvement of the supply-demand fundamentals, pig prices may continue to remain high. In August, there may be further slight increases in prices, and the profitability of pig enterprises in the third quarter may be further enhanced, reaching the peak of full-year profitability.

"Personally, I think that there is not much room for further increases after the third quarter. In August, prices may be slightly higher than they are now, but the increase is relatively limited. The profit point for this year is in the third and fourth quarters. The first half of the year belongs to a slightly profitable state of break-even profitability," said an industry expert interviewed by reporters.

According to data monitored by the National Bureau of Statistics, as of the end of June 2024, China's pig inventory was 415.33 million heads, a decrease of 18.89 million heads or 4.4% from the end of the previous year. Among them, the inventory of sows was 40.38 million heads, down 1.04 million heads or 2.5% from the end of the previous year.

In fact, the company is also optimistic about the market in the second half of the year. Qin Jun, the company's board secretary, said on a conference call, "The company has always been quite optimistic about pig prices in the second half of the year and may be even higher at this position now, but there are certain fluctuations in market prices every month."

It is worth mentioning that after Muyuan Foods released its semi-annual performance forecast, several institutions released their full-year profit forecasts for 2024, with the highest reaching 18.82 billion yuan.