Sales declined, seed prices fell, and net profit to mother declined year-on-year. The company achieved revenue of 1.376 billion yuan in the first half of 2024, or -25.77%, of which Q2 achieved operating income of 0.688 billion yuan, or -26.76% year over year; realized net profit of 0.183 billion yuan, or -67.61% year on year, of which Q2 achieved net profit to mother 0.074 billion yuan, or -70.68% year over year. During the reporting period, the decline in sales of chicken seedlings and falling prices were the main reasons why the company's revenue and profit were under year-on-year pressure.

Chicken seedlings business: Volume and price fell sharply in the first half of the year, and profits were under year-on-year pressure. In terms of revenue, due to the decline in imports of white feather broiler from the ancestral generation since May 2022, the company's 2024H1 white feather broiler sales volume was -15.55% to 0.277 billion feather. At the same time, due to the slump in downstream chicken and chicken markets, the average sales price of white feather broiler seedlings was -21.50% year over year, which ultimately led to the overall revenue of the company's chicken business of -31.61% to 1.205 billion yuan. In terms of profit, benefiting from cost reduction and efficiency measures and the impact of falling feed costs, the company's production costs have declined steadily but it is still difficult to offset the impact of the decline in sales prices. The gross margin of the company's chicken business 2024H1 was -13.98 pct to 30.01% year over year, and gross profit was -53.35% to 0.362 billion yuan compared to the same period last year.

Pig business: Production capacity was gradually released, and Q2 began contributing to profits. In terms of revenue, with the company's pig breeding farm being put into use, the company's binary breeding pigs have already begun to be marketed. The number of breeding pigs sold by 2024H1 was +632% to 8,452, which in turn led to +299% year-on-year revenue to 89.3383 million yuan. In terms of profit, driven by both rising production capacity and industry sentiment, the pig business began to achieve profits in Q2. The overall gross margin for 2024H1 was 4.38pct to 5.47% year over year, and gross profit was +121.97% to 4.8901 million yuan.

The short-term supply of white chicken is tight, and I am optimistic that the pig and chicken economy will resonate during the year. On the supply side, the blockage of imports of Chinese ancestral white feather broilers has begun to affect the production of commercial white feather broiler seedlings. As of June 16, the domestic parent breeding stock (in birth+backup) was 37.07 million sets, a decrease of 0.93% compared to the same period last year. Among them, the reserve parent breeding stock was 15.24 million sets, a decrease of 2.90% compared to the same period last year. It is expected that this will lead to a significant decrease in commercial chicken seedlings in the second half of the year. On the demand side, due to the decline in production capacity in the early stages, the current pig cycle has entered the right side. Continued rise in pig prices is expected to drive demand for chicken and chicken.

Taken together, the reduction in supply combined with the improvement in demand, the white feather broiler industry is expected to recover upward from the second half of the year. As a high-quality seedling company, Yisheng Co., Ltd. is expected to directly benefit.

Risk warning: An uncontrollable outbreak occurred during farming; a sharp rise in food prices increased feed costs.

Investment advice: As the leading domestic white-feather broiler breeder, the company's performance is expected to directly benefit from the recovery in the white feather broiler sector. We maintain the company's 2024-2026 net profit forecast of 0.403/0.903/0.809 billion yuan, corresponding to the 2024-2026 earnings per share of 0.36/0.82/0.73 yuan, corresponding to the current stock price PE of 25/11/12X, maintaining a “superior to the market” rating.