Core views:

There was a steady year-on-year increase in the number of pigs released in July, with an estimated average profit of about 600 yuan/head. The company issued a monthly operating announcement. In July '24, it sold 2.3233 million pigs, a decrease of 0.39% over the previous year; achieved revenue of 5.34 billion yuan, an increase of 51.19% year on year; the average sales price was 18.95 yuan/kg, and the estimated average breeding profit was about 600 yuan/head; the estimated average sales weight was 121.36 kg, down 1.5% from the previous month. From January to July, the company sold a total of 16.7 million pigs, an increase of 19.98% over the previous year. The company's pig production continues to reduce costs and increase efficiency. According to the investor relations activity record table, the comprehensive breeding cost was reduced to 14.2 yuan/kg in May. In terms of production capacity, as of the end of April, the company was able to breed 1.57 million sows, an increase of 0.02 million over March.

Broiler sales increased year-on-month in July, and production remained stable at a high level. In July '24, the company sold 0.097 billion broilers, up 5.2% month-on-month, up 2.77%; achieved revenue of 2.627 billion yuan, an increase of 0.4% year-on-year; the average sales price was 13.20 yuan/kg, and the estimated profit for a single chicken exceeded 2 yuan/feather. From January to July, the company sold a total of 0.645 billion broilers, a year-on-year decrease of 0.5%. The company's meat and poultry business maintains steady production, and the cost advantage is obvious. According to the investor relations activity record table, the full cost of chicken was reduced to 12 yuan/kg in May '24.

Farming profits are expected to exceed expectations, and the industry's production capacity recovery may be relatively slow. Benefiting from factors such as early production capacity removal, pig prices have continued to rise recently. With the gradual arrival of the peak consumption season, the upward trend in pig prices is expected to continue. Benefiting from falling raw material prices and improved epidemic prevention efficiency, listing costs have entered a rapid decline channel. The industry will fully benefit from the widening “scissor gap” between rising pig prices and falling costs, and profit levels are expected to exceed expectations. In terms of production capacity, the price increase of reserve sows is moderate, or the enthusiasm for side reactions to back-up is average. The recovery of sows may still be relatively slow, and the continuation of the industry boom is expected to exceed expectations.

Profit forecasting and investment advice. We expect the company's EPS to be 1.57, 1.91, and 2.55 yuan/share respectively in 2024-26, maintaining a reasonable value of 26.73 yuan/share, corresponding to 17 times the PE valuation in 24, and maintaining a “buy” rating.

Risk warning. Risk of fluctuations in pig prices, risk of fluctuations in raw material prices, risk of epidemic diseases, food safety, etc.