Q2 Turned a loss into a profit, and the number of pigs released remained high

The new Wufeng 24H1 achieved operating income of 3.22 billion yuan (+29% year over month, +3.7% month over month); net profit to mother of 0.247 billion yuan (year-on-month loss reduction). Driven by a recovery in pig prices and a steady increase in sales volume, the company's 24Q2 performance improved markedly, achieving the first profit since 23Q1. We estimate that the company's 24Q2 pig sector may have a profit of 0.08 to 0.01 billion yuan, and the meat and other sectors may have a slight loss. The company has abundant production capacity, maintained high growth in listing, and there is still room for potential cost expansion. We expect the company to make a profit of 0.111/0.905/0.795 billion yuan respectively in 24-26. The corresponding BVPS is 2.46/3.18/3.81 yuan. Referring to the average valuation value of comparable companies, the company will be given 2024E 3.08XPB, corresponding to a target price of 7.58 yuan, to maintain the “gain” rating.

Driven by the recovery in pig prices, the company reversed its losses in 24Q2 compared to the same period

The company achieved operating income of 1.8 billion yuan in 24Q2 (+38% YoY, +26% month-on-month) and achieved net profit of 0.0073 billion yuan to mother, ending 5 consecutive quarters of losses since 23Q1 and achieving profit in a single quarter. According to analysis, we believe that the recovery in pig prices in the second quarter and the steady increase in the number of pigs released by the company may be the main reason for the improvement in the company's 24Q2 and 24H1 performance. The company listed 1.97 million pigs in 24H1, +54% year over year; Q2 listed 1.05 million heads, +58% year over year. By business: With the exception of domestic pig sales and frozen meat business, the company recorded a year-on-year increase of 53% and 19%, revenue from other sectors, such as slaughter, fresh meat, pig exports, feed, etc., declined year-on-year. We analyzed slaughter and fresh meat or the effects of weak pork consumption; pig exports are due to improved quality and transformation of some of the pig farms exported by 24H1, and the export volume decreased; feed was reduced by the company's export sales, mainly for its own pig farms.

24H1 can reach 0.23 million at the end of the day, and the cost still has room to expand

The company's production capacity has been steadily expanding. As of 24H1, the company has kept 0.2328 million sows, an increase of 0.0229 million over the beginning of the period. 24H1 delivered a total of 1 sow farm and 1 fat pig farm, adding 4,800 sows and an annual production capacity of 0.0952 million fat pigs. We estimate that with the delivery of the company's new pig farms in the second half of the year, the size of the company's sow barn may reach 0.31 million heads by the end of 2023. In terms of cost, we estimate that the full cost of the company's 24Q2 pig farming may rise slightly due to the impact of the epidemic at the end of last year. The estimate is about 17.5 to 18.0 yuan/kg. As the impact of the epidemic subsides, the company's pig breeding system is replaced, and production and operation management is strengthened, we expect there is still room to expand the company's costs.

The target price is 7.58 yuan, maintaining the “gain” rating

We maintain the company's profit forecast for 2024. Considering the possible decline in pig prices in 2025 and 2026, we lowered the company's profit forecast for 2025 and 2026 to 0.905 and 0.795 billion yuan (previous values of 1.28 and 0.94 billion yuan), and the corresponding BVPS is 2.46/3.18/3.81 yuan. Referring to the average valuation value of a comparable company of 3.08XPB, the company was given 2024E 3.08XPB, corresponding to a target price of 7.58 yuan, maintaining the “gain” rating.

Risk warning: Pig production capacity recovery is less than expected, risk of African swine fever epidemic, channel development results falling short of expectations, risk of pig price fluctuations, etc.