The average profit for pork heads in July was close to 600 yuan, and the 24H2 pig and chicken boom is expected to resonate for the better

The company's pig and chicken sales continued to increase in July. The price of pork pigs was 18.95 yuan/kg, which is better than the industry average. It is estimated that pork pigs achieved an average profit of nearly 600 yuan. The supply of 24H2 pigs may continue to shrink, the early production capacity of yellow chicken is being reduced, and the peak seasonal consumption season is getting closer. The pig and chicken boom is expected to resonate and improve in the second half of the year, which is expected to drive the company's profits to continue to rise. We expect the company's net profit to be 10/13.4/13.1 billion yuan for 24/25/26, respectively, and the corresponding BVPS is 6.48/8.29/10.16 yuan, respectively. Referring to comparable company Wind's consistent expectations of 3.46X PB in 2024, considering the company's stable cost advantage, we will maintain the company's 3.94 times PB in 2024, with a target price of 25.53 yuan, and maintain a “buy” rating.

The price increase of pork and pork surpassed the industry, with an average profit of nearly 600 yuan

In July, the company's pork sales continued to increase year over year, and the sales price was better than the industry average. We estimate that pork heads are all profitable or close to 600 yuan; broilers have increased, but prices have declined. 1) Pigs: Selling 2.32 million pigs in July (+9% year over year, basically the same month over month), the average sales price of hairy pigs was 18.95 yuan/kg (year-on-year +4.74 yuan/kg, +0.85 yuan/kg month-on-month). The absolute value of sales price and the year-on-month increase had certain advantages over the country's average pig price, or mainly due to the contraction in pig supply support in July. Coupled with the increase in national pig prices due to restrictions on the transfer of pigs from other provinces in the southern sales area, the price performance of pigs in southern China was stronger. Considering that the company's breeding production management may continue to improve, we estimate that the full cost of the company's pig farming may be declining steadily. Corresponsively, the company is expected to make a profit of nearly 600 yuan in July (the average profit of the industry from self-breeding is 405 yuan). 2) Yellow chicken: Sales of broilers in July were 97.3 million, a single-digit increase over the same period. The average sales price was about 13.2 yuan/kg, and a small single-digit decline compared to the same period last month. The price of yellow chicken fell in July or was mainly due to no significant contraction in supply (the combined sales volume of Wen's and Lihua increased by about 7.08 million feathers month-on-month in July), and consumption has not yet entered the peak season.

The 24H2 supply and demand pattern may be tightening, and the pig and chicken boom is expected to resonate well with the pig farming business. We expect that 24H2 pig prices will still have room to rise, company costs will continue to decline, and the company's average profit level is expected to rise significantly. 1) Price: 23Q4 to 24Q1 The Ministry of Agriculture and Rural Affairs monitors quarterly breeding sows to speed up degeneration, and the number of newborn piglets is only beginning to recover significantly until June of this year. It is expected that the supply of fat pigs will still be tight before 24Q4. Combined with demand-side seasonal factors, we expect the pig price cycle to be high in 24Q4. Based on data such as feed and animal insurance sales data still showing a large year-on-year decline, we believe that the current cycle was affected by the industry's losses that were too deep and too long in the early stages, and that the restoration of production capacity was relatively slow; this may correspond to a situation where pig prices will not fall too drastically in the future. 2) Costs: Global soybean supply is still loosened+domestic corn production recovery+planting costs are declining. The downward trend in food prices is expected to continue; combined with the company's excellent epidemic prevention and control effects and stable large-scale production, the company's pig farming costs are expected to continue to decline. The profit of the company's pig farming business is expected to increase significantly, and the average profit advantage is expected to continue to expand further.

In terms of the chicken raising business, yellow chicken breeding capacity has been fully reduced in the early stages. It is expected that as chicken consumption gradually enters the peak season in the second half of the year, and the yellow chicken supply and demand pattern may tighten, yellow chicken prices are expected to rise.

Risk warning: the number of pigs released falls short of expectations, pig prices fall short of expectations, repeated non-plague outbreaks, large-scale animal disease outbreaks, the pace of expansion does not match market demand, etc.